Wir2006overview en

United Nations Conference on Trade and Development
World
Investment
Report 2006
FDI from Developing and
Transition Economies:
Implications for Development
Overview
United Nations
New York and Geneva, 2006
Note
As the focal point in the United Nations system for investment and technology, and
building on 30 years of experience in these areas, UNCTAD, through DITE, promotes
understanding of key issues, particularly matters related to foreign direct investment and transfer
of technology. DITE also assists developing countries in attracting and benefiting from FDI
and in building their productive capacities and international competitiveness. The emphasis is
on an integrated policy approach to investment, technological capacity building and enterprise
development.
The terms country/economy as used in this Report also refer, as appropriate, to territories
or areas; the designations employed and the presentation of the material do not imply the
expression of any opinion whatsoever on the part of the Secretariat of the United Nations
concerning the legal status of any country, territory, city or area or of its authorities, or concerning
the delimitation of its frontiers or boundaries. In addition, the designations of country groups
are intended solely for statistical or analytical convenience and do not necessarily express a
judgement about the stage of development reached by a particular country or area in the
development process. The major country groupings used in this Report follow the classification
of the United Nations Statistical Office. These are:
Developed countries: the countries members of the OECD (other than Mexico, the Republic
of Korea and Turkey), plus the new European Union member countries which are not
OECD members (Cyprus, Estonia, Latvia, Lithuania, Malta and Slovenia), plus Andorra,
Israel, Liechtenstein, Monaco and San Marino.
Transition economies: South-East Europe and the Commonwealth of Independent States.
Developing economies: in general all economies not specified above.
The reference to a company and its activities should not be construed as an endorsement
by UNCTAD of the company or its activities.
The boundaries and names shown and designations used on the maps presented in this
publication do not imply official endorsement or acceptance by the United Nations.
The following symbols have been used in the tables:
Two dots (..) indicate that data are not available or are not separately reported. Rows in
tables have been omitted in those cases where no data are available for any of the elements
in the row;
A dash (-) indicates that the item is equal to zero or its value is negligible;
A blank in a table indicates that the item is not applicable, unless otherwise indicated;
A slash (/) between dates representing years, e.g., 1994/95, indicates a financial year;
Use of a hyphen (-) between dates representing years, e.g., 1994-1995, signifies the full
period involved, including the beginning and end years;
Reference to "dollars" ($) means United States dollars, unless otherwise indicated;
Annual rates of growth or change, unless otherwise stated, refer to annual compound rates;
Details and percentages in tables do not necessarily add to totals because of rounding.
The material contained in this study may be freely quoted with appropriate
acknowledgement.
Visit the website of the
UNCTAD/WIR/2006 (Overview) World Investment Reports at
www.unctad.org/wir
ii
Acknowledgements
The World Investment Report 2006 (WIR06) was prepared by a

team led by Anne Miroux and comprising Kumi Endo, Torbjörn
Fredriksson, Masataka Fujita, Masayo Ishikawa, Kálmán Kalotay,
Joachim Karl, Dong Jae Lee, Guoyong Liang, Michael Lim, Padma
Mallampally, Hafiz Mirza, Nicole Moussa, Abraham Negash, Hilary
Nwokeabia, Shin Ohinata, Jean-François Outreville, Thomas Pollan
and James Zhan.
Principal research assistance was provided by Mohamed Chiraz

Baly, Bradley Boicourt, Jovan Licina, Lizanne Martinez and Tadelle
Taye. Anne-Christine Charon, Michael Karschnia, Elodie Laurent and
Arthur van de Kamp assisted as interns at various stages. The
production of the WIR06 was carried out by Severine Excoffier, Chantal
Rakotondrainibe and Katia Vieu. WIR06 was desktop published by
Teresita Ventura. It was edited by Praveen Bhalla.
John H. Dunning was the senior economic adviser.
WIR06 benefited from inputs provided by participants in a Global

Seminar in Geneva in May 2006, and three regional seminars on FDI
from developing countries held in April 2006: one in Mexico City,
Mexico (in cooperation with the Economic Commission for Latin
America and the Caribbean and the Government of Mexico), the second
in Chiang Mai, Thailand (in cooperation with the ASEAN Secretariat
and the Government of Thailand), and the third in Johannesburg, South
Africa (in cooperation with Reginald Rumney and the Edge Institute).
Inputs were also received from Emin Akçaoglu, Bekele Amare,

Frank Bartels, Yannis Berthouzoz, Peter Buckley, Hamed El-Kady,
Geoffrey Gachino, Celso Garrido, Stephen Gelb, Andrea Goldstein,
Kathryn Gordon, Vishwas Govitrikar, Carrie Hall, Susan Hayter,
Daisuke Hiratsuka, Veena Jha, Thomas Jost, Georg Kell, Kee Beom
Kim, Ari Kokko, Julia Lewis, Mina Mashayekhi, John Mathews,
Anthony Miller, Rekha Misra, Toh Mun Heng, Ramón Padilla, Pavida
Pananond, Neil Patterson, Jenny Rydeman, Frans Paul van der Putten,
Kee Hwee Wee, Sun Wenjie, Bing Xiang and Tham Siew Yean.
iii
Comments were received during various stages of preparation
from Carlos Arruda, Dilek Aykut, Rashmi Banga, Diana Barrowclough,
Joseph Battat, David Benavides, Peter Brimble, Douglas Brooks,
Gregorio Canales Ramirez, John Cassidy, Refik Culpan, John Daniels,
Maria de los Angeles Pozas, Ping Deng, Diana Farrell, Axèle Giroud,
Ulrich Grosch, Wuping Guo, Guner Gursoy, Sireen Hikmat, Gábor
Hunya, Yao-Su Hu, Moses Ikiara, Bharat Joshi, Anna Joubin Bret,
Metin Kilci, Annamaria Kokeny Ivanics, Josephat Kweka, Seong-Bong
Lee, Robert Lipsey, Kari Liuhto, Aimable Uwizeye Mapendano, Juan
Carlos Moreno-Brid, Michael Mortimore, Peter Muchlinski, Sanusha
Naidu, Kishore Nair, Rajneesh Narula, Abdoulaye Niang, Peter
Nunnenkamp, Gerald Pachoud, Sheila Page, Fernando Porta, Marie-
Estelle Rey, Reginald Rumney, Tagi Sagafi-Nejad, Mona Salim Bseiso,
Yai Sriratana, Marjan Svetlicic, Mazen M. Tineh, Len Treviño, Judit
Vadasz, Joerg Weber, Henry Yeung and Zbigniew Zimny.
Numerous officials of central banks, statistical offices,

investment promotion and other government agencies, and officials of
international organizations and non-governmental organizations, as
well as executives of a number of companies, also contributed to
WIR06, especially through the provision of data and other information.
The Report also benefited from collaboration with Erasmus University,
Rotterdam on the collection of data on, and analysis of, the largest
TNCs.
The financial support of the Governments of Norway and Sweden

is gratefully acknowledged.
iv
Contents
Page
Overview ........................................................................................................... 1
ANOTHER YEAR OF FDI GROWTH
Foreign direct investment in 2005 grew for the second consecutive year,
and it was a worldwide phenomenon. ......................................................... 1
It was spurred by cross-border M&As, with increasing deals also
undertaken by collective investment funds. ................................................ 3
Most inflows went into services, but the sharpest rise in FDI was in
natural resources. ......................................................................................... 5
There has been a significant increase in developing-country firms in the
universe of transnational corporations. ...................................................... 5
Liberalization continues, but some protectionist tendencies are also
emerging. ...................................................................................................... 9
Africa attracted much higher levels of FDI. ............................................. 11
South, East and South-East Asia is still the main magnet for inflows into
developing countries ... ............................................................................... 12
… while West Asia received an unprecedented level of inflows. .............. 13
Latin America and the Caribbean continued to receive
substantial FDI. .......................................................................................... 14
FDI flows to South-East Europe and the Commonwealth of Independent
States remained relatively high... ............................................................... 16
…while there was an upturn in FDI to developed countries. .................. 16
Overall, FDI should continue to grow in the short term. ......................... 17
FDI FROM DEVELOPING AND TRANSITION ECONOMIES

Developing and transition economies have emerged as significant
outward investors… .................................................................................... 18
…generating considerable South-South investment flows. ..................... 20
New global and regional players are emerging, especially from Asia . …22
…as developing-country TNCs respond to the threats and opportunities
arising from globalization with their own distinctive competitive
advantages. .................................................................................................. 23
Their outward expansion is driven by various factors … ........................ 25
v
Page
...which, together with TNCs’ motives and competitive advantages, result
in most of their FDI being located in developing countries. ................... 26
Increased competitiveness is one of the prime benefits that developing-
country TNCs can derive from outward FDI … ....................................... 28
…while home countries can also benefit. ................................................. 29
Developing host countries may also gain from the rise in South-South
FDI. ............................................................................................................. 31
The expansion of outward FDI from developing countries is paralleled by
changing policies in home countries... ...................................................... 32
…various policy responses in host countries … ....................................... 34
…and it has implications also for the management of CSR issues… ..... 35
…and for international rule making. ........................................................ 36
Annex
Table of contents of the World Investment Report 2006: FDI
from Developing and Transition Economies:
Implications for Development ................................................................ 37
List of the World Investment Reports .................................................... 39
Questionnaire ........................................................................................... 43
Figures
1. Global FDI flows, top 20 economies, 2004-2005 ................................... 4
2. Cross-border M&As by sector, 2004-2005 .............................................. 6
3. Outward FDI flows from developing and
transition economies, 1980-2005 ............................................................ 19
4. Intra-regional and inter-regional FDI flows in developing countries
excluding offshore financial centres, average 2002-2004 .................... 21
Tables
1. FDI flows, by region and selected countries, 1994-2005 ....................... 2
2. Cross-border M&As by collective investment funds, 1987-2005 .......... 5
3. Selected indicators of FDI and international production, 1982-2005 ... 7
4. The world’s top 25 non-financial TNCs, ranked by
foreign assets, 2004 ................................................................................... 8
5. The top 25 non-financial TNCs from developing economies,
ranked by foreign assets, 2004 ................................................................ 10
6. National regulatory changes, 1992-2005 ............................................... 11
7. Top 15 developing and transition economies in terms
of stocks of outward FDI, 2005 .............................................................. 20
vi
World Investment Report 2006
FDI from Developing and Transition
Economies: Implications for Development
Overview
ANOTHER YEAR OF FDI GROWTH
Foreign direct investment in 2005 grew for the second

consecutive year, and it was a worldwide phenomenon.
Inflows of foreign direct investment (FDI) were substantial in 2005.
They rose by 29% – to reach $916 billion – having already increased by 27%
in 2004. Inward FDI grew in all the main subregions, in some to unprecedented
levels, and in 126 out of the 200 economies covered by UNCTAD.
Nevertheless, world inflows remained far below the 2000 peak of $1.4 trillion.
Similar to trends in the late 1990s, the recent upsurge in FDI reflects a greater
level of cross-border mergers and acquisitions (M&As), especially among
developed countries. It also reflects higher growth rates in some developed
countries as well as strong economic performance in many developing and
transition economies. 1
Inflows to developed countries in 2005 amounted to $542 billion, an
increase of 37% over 2004 (table 1), while to developing countries they rose
to the highest level ever recorded – $334 billion. In percentage terms, the
share of developed countries increased somewhat, to 59% of global inward
FDI. The share of developing countries was 36% and that of South-East
Europe and the Commonwealth of Independent States (CIS) was about 4%.
The United Kingdom saw its inward FDI surge by $108 billion to reach
a total of $165 billion, making it the largest recipient in 2005. Despite a decline
in the level of inward FDI, the United States was the second largest recipient.
Among developing economies, the list of the largest recipients compared
with previous years remained stable, with China and Hong Kong (China)
at the top, followed by Singapore, Mexico and Brazil. Regionally, the 25-
member European Union (EU) was the favourite destination, with inflows
of $422 billion, or almost half of the world total. South, East and South-East
Asia received $165 billion, or about a fifth of that total, with the East Asian
1 Transition economies refer to all the countries of South-East Europe and the
Commonwealth of Independent States.
2
Table 1. FDI flows, by region and selected countries, 1994-2005
(Billions of dollars and per cent)
FDI inflows FDI outflows

Region/country 1994-1999 2000 2001 2002 2003 2004 2005 1994-1999 2000 2001 2002 2003 2004 2005
(Annual average) (Annual average)
Developed economies 373.9 1 133.7 599.3 441.2 358.5 396.1 542.3 486.6 1 097.5 684.8 485.1 514.8 686.3 646.2
Europe 220.4 721.6 393.1 314.2 274.1 217.7 433.6 326.5 871.4 474.0 281.7 317.0 368.0 618.8
European Union 210.3 696.1 382.0 307.1 253.7 213.7 421.9 304.2 813.1 435.4 265.8 286.1 334.9 554.8
Japan 3.4 8.3 6.2 9.2 6.3 7.8 2.8 22.8 31.6 38.3 32.3 28.8 31.0 45.8
United States 124.9 314.0 159.5 74.5 53.1 122.4 99.4 114.3 142.6 124.9 134.9 129.4 222.4 - 12.7
Other developed countries 25.1 89.7 40.4 43.4 25.0 48.3 6.5 22.9 51.9 47.6 36.2 39.7 64.9 - 5.7
Developing economies 166.4 266.8 221.4 163.6 175.1 275.0 334.3 64.9 143.8 76.7 49.7 35.6 112.8 117.5
Africa 8.4 9.6 19.9 13.0 18.5 17.2 30.7 2.5 1.5 - 2.7 0.3 1.2 1.9 1.1
Latin America and the Caribbean 65.2 109.0 89.4 54.3 46.1 100.5 103.7 18.9 60.0 32.2 14.7 15.4 27.5 32.8
Asia and Oceania 92.9 148.3 112.2 96.2 110.5 157.3 200.0 43.5 82.2 47.2 34.7 19.0 83.4 83.6
Asia 92.4 148.0 112.0 96.1 110.1 156.6 199.6 43.5 82.2 47.1 34.7 19.0 83.4 83.6
West Asia 3.1 3.5 7.2 6.0 12.3 18.6 34.5 0.4 1.5 - 1.2 0.9 - 2.2 7.4 15.9
East Asia 58.5 116.3 78.8 67.4 72.2 105.1 118.2 32.3 72.0 26.1 27.6 14.4 59.2 54.2
China 40.7 40.7 46.9 52.7 53.5 60.6 72.4 2.2 0.9 6.9 2.5 - 0.2 1.8 11.3
South Asia 3.4 4.7 6.4 7.0 5.7 7.3 9.8 0.1 0.5 1.4 1.7 1.4 2.1 1.5
South-East Asia 27.4 23.5 19.6 15.8 19.9 25.7 37.1 10.7 8.2 20.8 4.6 5.4 14.7 12.0
Oceania 0.5 0.3 0.1 0.1 0.4 0.7 0.4 0.0 0.0 0.1 0.0 0.0 0.0 0.0
South-East Europe and the CIS 7.8 9.1 11.5 12.9 24.2 39.6 39.7 1.6 3.2 2.7 4.7 10.7 14.0 15.1
South-East Europe 2.2 3.6 4.2 3.9 8.5 13.3 12.4 0.1 - 0.1 0.6 0.2 0.2 0.5
CIS 5.6 5.4 7.3 9.0 15.7 26.3 27.2 1.5 3.2 2.5 4.1 10.6 13.8 14.6
World 548.1 1 409.6 832.2 617.7 557.9 710.8 916.3 553.1 1 244.5 764.2 539.5 561.1 813.1 778.7
Transition Economies: Implications for Development
Memorandum: percentage share in world FDI flows

World Investment Report 2006. FDI from Developing and
Developed economies 68.2 80.4 72.0 71.4 64.3 55.7 59.2 88.0 88.2 89.6 89.9 91.7 84.4 83.0
Developing economies 30.4 18.9 26.6 26.5 31.4 38.7 36.5 11.7 11.6 10.0 9.2 6.3 13.9 15.1
South-East Europe and the CIS 1.4 0.6 1.4 2.1 4.3 5.6 4.3 0.3 0.3 0.4 0.9 1.9 1.7 1.9
Source: UNCTAD, World Investment Report 2006: FDI from Developing and Transition Economies, annex table B.1 and FDI/TNC database
(www.unctad.org/fdistatistics).
Overview 3
subregion accounting for about three quarters of the regional share. North
America came next with $133 billion, and South and Central America followed
with $65 billion. West Asia experienced the highest inward FDI growth rate,
of 85%, amounting to $34 billion. Africa received $31 billion, the largest ever
FDI inflow to that region.
Global FDI outflows amounted to $779 billion (a different amount from
that estimated for FDI inflows due to differences in data reporting and
collecting methods of countries). Developed countries remain the leading
sources of such outflows. In 2005, the Netherlands reported outflows of
$119 billion, followed by France and the United Kingdom. However, there
were significant increases in outward investment by developing economies,
led by Hong Kong (China) with $33 billion (figure 1). Indeed, the role of
developing and transition economies as sources of FDI is increasing.
Negligible or small until the mid-1980s, outflows from these economies
totalled $133 billion last year, corresponding to some 17% of the world total.
The implications of this trend are explored in detail in Part Two of this Report.
It was spurred by cross-border M&As, with increasing deals

also undertaken by collective investment funds.
Cross-border M&As, especially those involving companies in
developed countries, have spurred the recent increases in FDI. The value
of cross-border M&As rose by 88% over 2004, to $716 billion, and the number
of deals rose by 20%, to 6,134. These levels are close to those achieved
in the first year of the cross-border M&A boom of 1999-2001. The recent
surge in M&A activity includes several major transactions, partly fuelled
by the recovery of stock markets in 2005. There were 141 mega deals valued
at more than $1 billion – close to the peak of 2000, when 175 such deals were
observed. The value of mega deals was $454 billion in 2005 – more than twice
the 2004 level and accounting for 63% of the total value of global cross-
border M&As.
A new feature of the recent M&A boom is increasing investment by
collective investment funds, mainly private equity and related funds. A
number of factors, including historically low interest rates and increasing
financial integration, have led private equity firms to undertake direct
investments abroad, which are estimated to have reached $135 billion in
2005 and accounted for 19% of total cross-border M&As (table 2). Unlike
other kinds of FDI, private equity firms tend not to undertake long-term
investment, and exit their positions with a time horizon of 5 to 10 years (or
an average of 5-6 years), long enough not to be regarded as typical portfolio
investors. Thus host countries, and developing ones in particular, need to
be aware of this difference in time horizon. At the same time, foreign
ownership can bring market access and new technologies, and private equity
4
Figure 1. Global FDI flows, top 20 economies, 2004-2005 a
(Billions of dollars)
Source: UNCTAD, World Investment Report 2006: FDI from Developing and Transition Economies, annex table B.1 and FDI/TNC database
(www.unctad.org/fdistatistics).
a Ranked on the basis of the magnitude of 2005 FDI flows.
Overview 5
Table 2. Cross-border M&As by investment can help host-country

collective investment funds, 1987-2005 enterprises at a critical juncture to
(Number of deals and value) move to a new phase of
development.
Number of deals Value
Share in Share in Most inflows went into
Year Number total (%) $ billion total (%)
services, but the sharpest
1987 43 5.0 4.6 6.1 rise in FDI was in natural
1988 59 4.0 5.2 4.5
1989 105 4.8 8.2 5.9 resources.
1990 149 6.0 22.1 14.7
1991 225 7.9 10.7 13.2 Services gained the most from
1992 240 8.8 16.8 21.3
1993 253 8.9 11.7 the surge of FDI, particularly
14.1
1994 330 9.4 12.2 finance, telecommunications and real
9.6
1995 362 8.5 13.9 7.5
1996 390 8.5 32.4
estate. (Since data on the sectoral
14.3
1997 415 8.3 37.0 distribution of FDI are limited, these
12.1
1998 393 7.0 46.9 8.8
observations are extrapolated from
1999 567 8.1 52.7 6.9
2000 636 8.1 58.1 data relating to cross-border M&As,
5.1
2001 545 9.0 71.4 which accounted for a significant
12.0
2002 478 10.6 43.8 11.8
2003 649 14.2 52.5
share of inflows.) The predominance
17.7
2004 771 15.1 77.4 of services in cross-border
20.3
2005 889 14.5 134.6 18.8
investments is not new. What is new
Source: UNCTAD, World Investment is the further and sharp decline in the
Report 2006: FDI from share of manufacturing (four
Developing and Transition percentage points lower in cross-
Economies, table I.6. border M&A sales over the
preceding year) and the steep rise of FDI into the primary sector (with a
sixfold increase in cross-border M&A sales), primarily the petroleum
industry (figure 2).
There has been a significant increase in developing-country

firms in the universe of transnational corporations.
Transnational corporations (TNCs), most of them privately owned,
undertake FDI. However, in some home countries (notably in the developing
world) and in some industries (especially those related to natural resources)
a number of major State-owned enterprises are also increasingly expanding
abroad. According to estimates by UNCTAD, the universe of TNCs now
spans some 77,000 parent companies with over 770,000 foreign affiliates.
In 2005, these foreign affiliates generated an estimated $4.5 trillion in value
added, employed some 62 million workers and exported goods and services
valued at more than $4 trillion (table 3).
The TNC universe continues to be dominated by firms from the Triad
– the EU, Japan and the United States – home to 85 of the world’s top 100
TNCs in 2004 (table 4 for the top 25 TNCs). Five countries (France, Germany,
6 Transition Economies: Implications for Development
Figure 2. Cross-border M&As by sector, 2004-2005
Source: UNCTAD, World Investment Report 2006: FDI from Developing and Transition
Economies, figure I.4.
Japan, the United Kingdom and the United States) accounted for 73 of the
top 100 firms, while 53 were from the EU. Heading the list of the global top
100 non-financial TNCs are General Electric, Vodafone and Ford, which
together account for nearly 19% of the total assets of these 100 companies.
The automobile industry dominates the list, followed by pharmaceuticals
and telecommunications.
However, firms from other countries are advancing internationally.
Total sales of TNCs from developing countries reached an estimated $1.9
trillion in 2005 and they employed some 6 million workers. In 2004, there
were five companies from developing economies in the list of the top 100
TNCs, all with headquarters in Asia, three of them State-owned. These five
companies – Hutchison Whampoa (Hong Kong, China), Petronas
(Malaysia), Singtel (Singapore) Samsung Electronics (the Republic of Korea)
and CITIC Group (China) – topped the list of the largest 100 TNCs from
Table 3. Selected indicators of FDI and international production, 1982-2005
(Billions of dollars and per cent)
Value at current prices Annual growth rate

(Billions of dollars) (Per cent)
1986- 1991- 1996-
Item 1982 1990 2004 2005 1990 1995 2000 2002 2003 2004 2005
FDI inflows 59 202 711 916 21.7 21.8 40.0 -25.8 -9.7 27.4 28.9
FDI outflows 28 230 813 779 24.6 17.1 36.5 -29.4 4.0 44.9 -4.2
FDI inward stock 647 1 789 9 545 10 130 16.8 9.3 17.3 9.7 20.6 16.1 6.1
FDI outward stock 600 1 791 10 325 10 672 18.0 10.7 18.9 9.6 17.7 14.1 3.4
Income on inward direct investment 47 76 562 558 10.4 30.9 17.4 10.8 37.0 32.3 -0.7
Income on inward direct investment 47 120 607 644 18.7 18.1 12.7 6.3 37.0 26.6 6.1
Cross border M&As a .. 151 381 716 25.9 b 24.0 51.5 -37.7 -19.7 28.2 88.2
Sales of foreign affiliates 2 620 6 045 20 986 22 171 19.7 8.9 10.1 11.2 30.4 11.4 5.6
Gross product of foreign affiliates 646 1 481 4 283 4 517 17.4 6.9 8.8 1.9 20.3 22.8 5.4
Total assets of foreign affiliates 2 108 5 956 42 807 45 564 18.1 13.8 21.0 36.7 27.9 3.5 6.4
Export of foreign affiliates 647 1 366 3 733 4 214 14.3 8.4 4.8 4.9 16.5 21.0 12.9
Employment of foreign affiliates (thousands)19 537 24 551 59 458 62 095 5.4 3.2 11.0 10.0 -0.5 20.1 4.4
GDP (in current prices) 10 899 21 898 40 960 44 674 11.1 5.9 1.3 3.9 12.1 12.1 9.1
Gross fixed capital formation 2 397 4 925 8 700 9 420 12.7 5.6 1.1 0.4 12.4 15.5 8.3
Royalties and licences fees receipts 9 30 111 91 21.2 14.3 7.8 7.9 14.1 17.0 -17.9
Export of goods and non-factor services 2 247 4 261 11 196 12 641 12.7 8.7 3.6 4.9 16.5 21.0 12.9
Source: UNCTAD, World Investment Report 2006: FDI from Developing and Transition Economies, table I.2.
Overview
a Data are only available from 1987 onward.

b 1987-1990 only.
7
8
Table 4. The world’s top 25 non-financial TNCs, ranked by foreign assets, 2004
(Millions of dollars and number of employees)
Ranking by: Assets Sales Employment TNI b No. of affiliates

Foreign (Per
assets TNI b II c Corporation Home economy Industry Foreign Total Foreign Total Foreign Total cent) Foreign Total II
1 68 55 General Electric United States Electrical & electronic equipment 448 901 750 507 56 896 152 866 142 000 307 000 47.8 787 1157 68.02
2 4 93 Vodafone Group Plc United Kingdom Telecommunications 247 850 258 626 53 307 62 494 45 981 57 378 87.1 70 198 35.35
3 67 65 Ford Motor United States Motor vehicles 179 856 305 341 71 444 171 652 102 749 225 626 48.7 130 216 60.19
4 90 71 General Motors United States Motor vehicles 173 690 479 603 59 137 193 517 114 612 324 000 34.0 166 290 57.24
5 10 44 British Petroleum
Company Plc United Kingdom Petroleum expl./ref./distr. 154 513 193 213 232 388 285 059 85 500 102 900 81.5 445 611 72.83
6 38 37 Exxonmobil United States Petroleum expl./ref./distr. 134 923 195 256 202 870 291 252 52 968 105 200 63.0 237 314 75.48
7 25 88 Royal Dutch/Shell Group United Kingdom/
Netherlands Petroleum expl./ref./distr. 129 939 192 811 170 286 265 190 96 000 114 000 71.9 328 814 40.29
8 62 91 Toyota Motor Corp. Japan Motor vehicles 122 967 233 721 102 995 171 467 94 666 265 753 49.4 129 341 37.83
9 20 48 Total France Petroleum expl./ref./distr. 98 719 114 636 123 265 152 353 62 227 111 401 74.3 410 576 71.18
10 66 47 France Télécom France Telecommunications 85 669 131 204 24 252 58 554 81 651 206 524 48.7 162 227 71.37
11 49 60 Volkswagen Germany Motor vehicles 84 042 172 949 80 037 110 463 165 152 342 502 56.4 147 228 64.47
12 16 22 Sanofi-Aventis France Pharmaceuticals 82 612 104 548 15 418 18 678 68 776 96 439 77.6 207 253 81.82
13 61 54 Deutsche Telekom AG Germany Telecommunications 79 654 146 834 47 118 71 868 73 808 244 645 50.0 266 390 68.21
14 60 62 RWE Group Germany Electricity, gas and water 78 728 127 179 23 636 52 320 42 370 97 777 50.1 345 552 62.50
15 19 59 Suez France Electricity, gas and water 74 051 85 788 38 838 50 585 100 485 160 712 75.2 546 846 64.54
16 81 79 E.ON Germany Electricity, gas and water 72 726 155 364 21 996 60 970 32 819 72 484 42.7 303 596 50.84
17 13 6 Hutchison Whampoa Hong Kong Diversified 67 638 84 162 17 039 23 037 150 687 180 000 79.3 94 103 91.26
18 39 49 Siemens AG Germany Electrical & electronic equipment 65 830 108 312 59 224 93 333 266 000 430 000 62.0 605 852 71.01
19 3 4 Nestlé SA Switzerland Food & beverages 65 396 76 965 68 586 69 778 240 406 247 000 93.5 460 487 94.46
20 92 28 Electricite De France France Electricity, gas and water 65 365 200 093 17 886 55 775 50 543 156 152 32.4 240 299 80.27
21 29 87 Honda Motor Co Ltd Japan Motor vehicles 65 036 89 483 61 621 79 951 76 763 137 827 68.5 76 188 40.43
22 52 73 Vivendi Universal France Diversified 57 589 94 439 11 613 26 607 23 377 37 906 55.4 245 435 56.32
23 48 83 ChevronTexaco United States Motor vehicles 57 186 93 208 80 034 150 865 31 000 56 000 56.6 121 250 48.40
24 34 23 BMW AG Germany Motor vehicles 55 726 91 826 40 198 55 050 70 846 105 972 66.9 124 153 81.05
25 93 80 Daimler Chrysler United States/Germany Motor vehicles 54 869 248 850 68 928 176 391 101 450 384 723 29.2 324 641 50.55
S ource: UNCTAD/Erasmus University in UNCTAD, World Investment Report 2006: FDI from Developing and Transition Economies, annex table A.I.11.
a TNI, the Transnationlity Index, is calculated as the average of the following three ratios: foreign assets to total assets, foreign sales to total sales and foreign employment to
total employment. Ranking is based on 100 TNCs.
b II, the “Internationalization Index”, is calculated as the number of foreign affiliates divided the number of all affiliates (Note: Affiliates counted in this table refer to only majority-
owned affiliates). Ranking is based on 100 TNCs.
Note: The list covers non-financial TNCs only. In some companies, foreign investors may hold a minority share of more than 10 per cent.
Overview 9
developing countries (table 5 for the top 25 of these TNCs). (Since 1995,
the World Investment Report has published a list of the top 50 TNCs, but
in this Report the list has been expanded to cover 100 TNCs.) In 2004, 40
of the firms were from Hong Kong (China) and Taiwan Province of China,
14 from Singapore and 10 from China. Altogether, 77 of the top 100 TNCs
had their headquarters in Asia; the remaining were equally distributed
between Africa and Latin America.
Liberalization continues, but some protectionist tendencies

are also emerging.
In terms of regulatory trends relating to investment, the pattern
observed in previous years has persisted: the bulk of regulatory changes
have facilitated FDI. They have involved simplified procedures, enhanced
incentives, reduced taxes and greater openness to foreign investors.
However, there have also been notable moves in the opposite direction (table
6). In both the EU and the United States, growing concerns have arisen over
proposed foreign acquisitions. In early 2006, the acquisition by DP World
(United Arab Emirates) of P&O (United Kingdom), a shipping and port
management firm, along with that firm’s management of some ports in the
United States, led to United States protests on the grounds of security.
Similarly, in Europe concerns were voiced over a bid by Mittal Steel to acquire
Arcelor, and broader European opposition to the EU’s own directive relating
to the liberalization of services. Some notable regulatory steps were also
taken to protect economies from foreign competition or to increase State
influence in certain industries. The restrictive moves were mainly related
to FDI in strategic areas such as petroleum and infrastructure. For example,
the Latin American oil and gas industry became the focus of attention,
particularly following the Bolivian Government’s decision to nationalize
that industry in May 2006.
The web of international agreements of relevance to FDI continued
to expand. By the end of 2005, the total number of bilateral investment treaties
(BITs) had reached 2,495, and double taxation treaties (DTTs) 2,758, along
with 232 other international agreements containing investment provisions.
A number of developing countries are actively involved in such rule-making,
including through more South-South cooperation. A notable trend involves
the conclusion of further free trade agreements and various economic
cooperation arrangements dealing with investment. The universe of
international investment agreements (IIAs) is becoming increasingly
complex. The recent IIAs tend to deal with a broader set of issues, including
public concerns related, for example, to health, safety or the environment.
While such quantitative and qualitative changes may contribute to creating
a more enabling international framework for foreign investment, they also
10
Table 5. The top 25 non-financial TNCs from developing economies, ranked by foreign assets, 2004
(Millions of dollars, number of employees)
Ranking by: Assets Sales Employment TNI a No. of affiliates

Foreign (Per
assets TNI a II b Corporation Home economy Industry Foreign Total Foreign Total Foreign Total cent) Foreign Total II b
1 28 4 Hutchison Whampoa Limited Hong Kong, China Diversified 67 638 84 162 11 426 23 080 150 687 182 000 70.9 84 93 90.3
2 80 30 Petronas - Petroliam Nasional Bhd Malaysia Petroleum expl./ref./distr. 22 647 62 915 10 567 36 065 4 016 33 944 25.7 167 234 71.4
3 32 24 Singtel Ltd. Singapore Telecommunications 18 641 21 626 5 396 7 722 8 676 19 155 67.1 23 30 76.7
4 54 14 Samsung Electronics Co., Ltd. Republic of Korea Electrical & electronic equip. 14 609 66 6656 1 524 79 184 21 259 61 899 44.7 75 87 86.2
5 86 71 CITIC Group China Diversified 14 452 84 744 1 746 6 413 15 915 93 323 20.4 14 59 23.7
6 30 27 Cemex S.A. Mexico Construction 13 323 17 188 5 412 8 059 16 822 26 679 69.2 42 56 75.0
7 11 13 LG Electronics Inc. Republic of Korea Electrical & electronic equip. 10 420 28 903 36 082 41 782 41 923 32 000 84.5 32 37 86.5
8 62 66 China Ocean Shipping (Group) Co. China Shipping 9 024 14 994 4 825 11 293 4 230 70 474 36.3 40 134 29.9
9 75 55 Petróleos De Venezuela Venezuela Petroleum expl./ref./distr. 8 868 55 355 25 551 46 589 5 157 33 998 28.7 30 65 46.2
10 37 1 Jardine Matheson Holdings Ltd Hong Kong, China Diversified 7 141 10 555 5 830 8 988 57 895 110 000 61.7 83 88 94.3
11 66 23 Formosa Plastic Group Taiwan Province
of China Industrial chemicals 6 968 58 023 6 995 37 738 61 626 82 380 35.1 14 18 77.8
12 96 72 Petroleo Brasileiro S.A. - Petrobras Brazil Petroleum expl./ref./distr. 6 221 63 270 11 082 52 109 6 196 52 037 14.3 23 103 22.3
13 94 33 Hyundai Motor Company Republic of Korea Motor vehicles 5 899 56 387 15 245 51 300 4 954 53 218 16.5 13 20 65.0
14 33 12 Flextronics International Ltd. Singapore Electrical & electronic equip. 5 862 11 130 8 181 16 085 89 858 92 000 67.1 100 114 87.7
15 45 82 Capitaland Limited Singapore Real Estate 5 231 10 545 1 536 2 328 5 277 10 668 55.0 4 23 17.4
16 63 46 Sasol Limited South Africa Industrial chemicals 4 902 12 998 5 541 10 684 5 841 31 100 36.1 1 2 50.0
17 90 75 Telmex Mexico Telecommunications 4 734 22710 1 415 12 444 15 616 76 386 17.6 6 28 21.4
18 55 47 América Móvil Mexico Telecommunications 4 448 17 277 5 684 11 962 13 949 23 303 44.4 17 34 50.0
19 79 69 China State Construction
Engineering Corp. China Construction 4 357 11 130 2 513 11 216 21 456 130 813 26.0 4 16 25.0
20 43 22 Hon Hai Precision Industries Taiwan Province
(Foxconn) of China Electrical and electronic equip. 4 355 9 505 7 730 16 969 140 518 166 509 58.6 32 41 78.0
21 19 2 Shangri-La Asia Limited Hong Kong, China Hotels and motels 4 209 5 208 571 726 14 013 18 100 79.0 29 31 93.5
22 77 89 New World Development Co., Ltd. Hong Kong, China Diversified 4 202 15 567 891 2 865 12 687 47 000 28.4 7 57 12.3
23 27 7 Sappi Limited South Africa Paper 4 187 6 150 4 351 4 762 8 936 16 010 71.8 33 37 89.2
24 1 0 0 95 China National Petroleum Corp. China Petroleum expl./ref./distr. 4 060 110 393 5 218 68 952 22 000 1167 129 4.4 4 242 1.7
25 60 87 Companhia Vale do Rio Doce Brazil Mining & quarrying 4 025 16 382 9 395 10 380 2 736 36 176 40.9 6 48 12.5
Source: UNCTAD, World Investment Report 2006: FDI from Developing and Transition Economies, annex table A.I.12.
a TNI is calculated as the average of the following three ratios: foreign assets to total assets, foreign sales to total sales and foreign employment to total employment.
Ranking is based on 100 TNCs.
b II is calculated as the number of foreign affiliates divided by number of all affiliates (Note: Affiliates counted in this table refer to only majority-owned affiliates).
Ranking is based on 100 TNCs.
Overview 11
Table 6. National regulatory changes, 1992-2005
Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Number of countries that

introduced changes in
their investment regimes 43 57 49 64 65 76 60 63 69 71 70 82 102 93
Number of regulatory changes 77 100 110 112 114 150 145 139 150 207 246 242 270 205
More favourable to FDI 77 99 108 106 98 134 136 130 147 193 234 218 234 164
Less favourable to FDI - 1 2 6 16 16 9 9 3 14 12 24 36 41
Source: UNCTAD, World Investment Report 2006: FDI from Developing and Transition Economies,
table I.11.
mean that governments and firms have to deal with a rapidly evolving system
of multilayered and multifaceted set of rules. Keeping this framework
coherent and using it as an effective tool to further countries’ development
objectives remain key challenges.
Africa attracted much higher levels of FDI.

In Africa, FDI inflows shot up from $17 billion in 2004 to an
unprecedented $31 billion in 2005. Nonetheless, the region’s share in global
FDI continued to be low, at just over 3%. South Africa was the leading
recipient, with about 21% ($6.4 billion) of the region’s total inflows, mainly
as a result of the acquisition of ABSA (South Africa) by Barclays Bank
(United Kingdom). Egypt was the second largest recipient, followed by
Nigeria. As in the past, with a few exceptions such as Sudan, most of the
region’s 34 least developed countries (LDCs) attracted very little FDI. The
leading source countries remained the United States and the United Kingdom,
along with France and Germany further behind. Most of the FDI was in the
form of greenfield investments.
FDI flows to Africa in 2005 went mainly into natural resources,
especially oil, although services (e.g. banking) also figured prominently.
High commodity prices and strong demand for petroleum led to an increase
in exploration activities in a number of African countries, including Algeria,
Egypt, Equatorial Guinea, the Libyan Arab Jamahiriya, Mauritania, Nigeria
and Sudan. TNCs from the United States and the EU continued to dominate
the industry, but a number of developing-country TNCs, such as CNOOC
from China, Petronas from Malaysia and ONGC Videsh from India, are
increasingly expanding into Africa. Total FDI into six African oil-producing
countries – Algeria, Chad, Egypt, Equatorial Guinea, Nigeria and Sudan –
amounted to $15 billion, representing about 48% of inflows into the region
in 2005.
Although outward FDI from Africa declined in 2005, several African

TNCs deepened their internationalization, including through cross-border
M&As. For example, Orascom, acquired Wind Telecommunicazioni of Italy
through Weather Investments of Egypt. Most of the FDI from South Africa,
the leading investor in Africa, went to developing countries in 2005.
Manufacturing attracted less FDI than natural resources and services.
However, some sector-specific developments are worth highlighting.
Automotive TNCs have set up export-oriented production facilities in South
Africa, generating employment opportunities and export revenues.
Conversely, fragmented markets, poor infrastructure and a lack of skilled
workers, coupled with the ending in 2005 of the quotas established under
the Multi-Fibre Arrangement (MFA), contributed to some divestment in the
ready-made garments industry in countries like Lesotho. These divestments
suggest that preferential market access (as provided by the United States’
African Growth and Opportunities Act and the EU’s Everything But Arms
initiative) is not in itself sufficient to attract and retain manufacturing FDI
in a globalizing environment. If African countries are to become
internationally competitive, it is essential that they strengthen the necessary
linkages between their export sectors and the rest of the economy by building
and fostering domestic capabilities in areas such as physical infrastructure,
production capacity and institutions supportive of private investment.
There have been positive developments in terms of regulatory regimes,
and many African countries have signed new bilateral agreements related
to investment and taxation. However, attracting quality FDI – the kind that
would significantly increase employment, enhance skills and boost the
competitiveness of local enterprises – remains a challenge. Africa’s industrial
progress requires competitive production capacity, in addition to better
market access.
South, East and South-East Asia is still the main magnet for
inflows into developing countries ...
FDI inflows into South, East and South-East Asia reached $165 billion
in 2005, corresponding to 18% of world inflows. About two thirds went to
two economies: China ($72 billion) and Hong Kong, China ($36 billion). The
South-East Asian subregion received $37 billion, led by Singapore ($20
billion) and followed by Indonesia ($5 billion), Malaysia and Thailand ($4
billion each). Inflows to South Asia were much lower ($10 billion), though
they grew significantly in several countries, with the highest level ever for
India of $7 billion.
Over half of the inflows to the region came from developing home
economies, mostly within the region. The figures for inward stock show
Overview 13
significant growth in the share of these sources over the past decade, from
about 44% in 1995 to about 65% in 2004, with a corresponding decline in
the share of developed-country sources.
Manufacturing FDI has been increasingly attracted to South, East
and South-East Asia, although specific locations have changed as countries
have moved up the value chain. The sector continues to attract large inflows,
especially in the automotive, electronics, steel and petrochemical industries.
Viet Nam has become a new location of choice, attracting new investment
by companies such as Intel, which is investing $300 million in the first
semiconductor assembly plant in that country. In China, investment in
manufacturing is moving into more advanced technologies; for example,
Airbus plans to set up an assembly operation for its A320 aircraft. There
is, however, a shift towards services in the region, in particular banking,
telecommunications and real estate.
Countries in South, East and South-East Asia continue to open up
their economies to inward FDI. Significant steps in this direction were taken
in 2005, particularly in services. For example, India is now allowing single-
brand retail FDI as well as investment in construction, and China has lifted
geographic restrictions on operations of foreign banks and travel agencies.
A few measures were also introduced to address concerns over cross-border
M&As in countries such as the Republic of Korea.
South, East and South-East Asia is also an emerging source of FDI
(among developing countries), with outflows of $68 billion in 2005. Although
this implies a drop of 11% from 2004, Chinese outflows increased and seem
set to rise further in the next few years. Many of the region’s countries have
accumulated large foreign reserves, which may lead to more outward FDI.
Among the main recent FDI deals involving companies from this region
were Temasek’s (Singapore) purchase of an 11.5% stake in Standard
Chartered (United Kingdom) in 2006, and CNPC’s (China) takeover of
Petrokazakhstan in 2005. China and India have been energetically pursuing
the acquisition of oil assets, and have even cooperated on some bids.
… while West Asia received an unprecedented level of

inflows.
FDI inflows into the 14 economies of West Asia soared by 85%, the
highest rate in the developing world in 2005, to reach a total increase of
about $34 billion. High oil prices and consequently strong GDP growth
were among the main factors that drove this increase. In addition, the
regulatory regime was further liberalized, with an emphasis on privatization
involving FDI notably in services: for instance, power and water in Bahrain,
Jordan, Oman and the United Arab Emirates, transport in Jordan, and
telecommunications in Jordan and Turkey.
The United Arab Emirates collectively received inflows of $12 billion,

to become the largest recipient of FDI in West Asia in 2005. The next largest
was Turkey, primarily on account of a few mega cross-border M&A sales
in services. FDI inflows in West Asia have gone mainly into services,
including real estate, tourism and financial services. Much of the FDI in
real estate has been intraregional. There is also increasing FDI in
manufacturing, especially in refineries and petrochemicals, in which Saudi
Arabia alone received some $2 billion in 2005. There is little FDI in the primary
sector, as most West Asian countries do not permit it in upstream activities
in the energy industry.
West Asia is becoming a significant outward direct investor.
Traditionally, most of the region’s petrodollars have gone into bank deposits
and portfolio purchases abroad, particularly in the United States. This is
changing in both form and location. Unlike the previous periods of high
oil revenues, the present phase is witnessing substantial outward FDI in
services, in developing as well as developed countries. One motivation for
this has been to forge stronger economic ties with the emerging Asian giants,
China and India, but investment has also gone into Europe and Africa. Deals
such as the above-mentioned acquisition of P&O by DP World, and the
purchase of Celtel International (Netherlands) by Kuwait’s Mobile
Telecommunications illustrate this trend. Notable cases of South-South FDI
include the purchase of a 25% share by Saudi Aramco in a refinery in Fujian,
China, and a possible Saudi equity partnership with India’s ONGC in a
refinery in Andhra Pradesh, India.
Latin America and the Caribbean continued to receive

substantial FDI.
Latin America and the Caribbean saw inflows of $104 billion,
representing a small rise over 2004. Excluding the offshore financial centres,
inflows increased by 12%, to reach $67 billion in 2005. Economic growth
and high commodity prices were contributory factors. The region registered
exceptional GDP growth rates in 2004-2005, surpassing those of the world
average for the first time in 25 years. Strong demand for commodities
contributed to a noticeable improvement in the regional trade balance. A
significant proportion of the FDI inflows consisted of reinvested earnings,
reflecting a marked increase in corporate profits. Trends varied by country:
while inflows decreased in Brazil (- 17%), Chile (-7%) and Mexico (-3%), they
rose significantly in Uruguay (81%), more than trebled in Colombia, almost
doubled in Venezuela, and increased by 65% and 61% in Ecuador and Peru
respectively.
Sectorally, the share of FDI in services in total FDI flows continued
to decline, from 40% in 2004 to 35% in 2005 – a very low share compared
Overview 15
with other regions. Some TNCs continued to withdraw from the region, in
part due to disputes with host governments in areas such as public utilities
(e.g. the withdrawal from Argentina of Suez and EDF (both French firms)).
Manufacturing accounted for just over 40% of inflows, including a relatively
large number of M&As, such as SABMiller’s takeover of breweries in
Colombia and Peru, Grupo Techint’s (Argentina) purchase of the steel-maker
Hylsamex (Mexico), and Camargo Correa’s (Brazil) acquisition of the cement-
maker, Loma Negra (Argentina).
Even though a number of countries in the region introduced more
restrictive policies, FDI in the primary sector grew significantly, attracting
nearly 25% of inflows. Despite introducing a requirement on TNCs in the
petroleum industry to operate under new contracts Venezuela received FDI
inflows of $1 billion. In Colombia, petroleum-related FDI soared to $1.2 billion,
a 134% rise, and in Ecuador it increased by 72% in the first half of 2005.
Investment in the mining industry also expanded. In Colombia, for example,
it grew by nearly 60% to $2 billion, in Chile to $1.3 billion, in Peru to $1 billion
and in Argentina to $850 million.
Notwithstanding significant differences across countries, there
appears to be a trend towards greater State intervention in the region, above
all in the oil industry, and other natural resources. As a result of the large
windfall earnings generated by the exploitation of natural resources and
high commodity prices, several governments are introducing rules that are
less favourable to FDI than those established in the 1990s, when commodity
prices were at record lows. For instance, oil and gas resources have been
nationalized in Bolivia; and the Government of Venezuela took control of
32 oilfields previously under private control, and created new State-owned
companies in sectors such as sugar processing, retailing and
communications. In addition, a broader shift in policy is under way in some
countries, which aims at addressing income inequalities attributed to
previous policy regimes.
Regional cooperation in the area of investment experienced several
setbacks in 2005. Negotiations on establishing a 34-country Free Trade
Agreement of the Americas stalled owing to opposition by five countries
(including Argentina and Brazil); the free-trade talks between Ecuador and
the United States were suspended following a takeover by the Government
of Ecuador of Occident Petroleum’s production infrastructure.
FDI outflows from Latin America and the Caribbean increased by 19%
to $33 billion in 2005, with TNCs from the region acquiring assets mainly
in telecommunications and heavy industries. As a significant share of these
investments is within Latin America and the Caribbean, it also contributes
to FDI inflows into the region.
FDI flows to South-East Europe and the Commonwealth of

Independent States remained relatively high...
FDI flows to South-East Europe and the CIS in 2005 remained at a
relatively high level ($40 billion), increasing only slightly over the previous
year. Inflows were fairly concentrated: three countries – the Russian
Federation, Ukraine and Romania, in that order – accounted for close to three
quarters of the total. FDI outflows from the region grew for a fourth
consecutive year, reaching $15 billion, with the Russian Federation alone
responsible for 87% of the total outflows. The countries of the region have
different policy priorities related to inward and outward FDI, reflecting their
varying economic structures and institutional environments. In natural-
resource-based economies, such as the Russian Federation, Azerbaijan and
Kazakhstan, most of the policy issues concern management of the windfall
earnings from high international oil prices, and the definition – or redefinition
– of the role of the State.
…while there was an upturn in FDI to developed countries.

FDI inflows into developed countries rose by 37% to $542 billion,
or 59% of the world total. Of this, $422 billion went to the 25-member EU.
The United Kingdom – the largest single recipient of global FDI – received
$165 billion. The main contributory factor was the merger of Shell Transport
and Trading (United Kingdom) with Royal Dutch Petroleum (the
Netherlands), a deal valued at $74 billion. Other major FDI recipients, that
registered significant increases in their FDI inflows included France ($64
billion), the Netherlands ($44 billion) and Canada ($34 billion). The 10 new
EU members together attracted $34 billion, a rise of 19% over 2004 and
another new record high. Inflows into the United States amounted to $99
billion, a significant decline from 2004. Although well over 90% of all inflows
into developed countries originated from other developed countries, several
notable investments by TNCs from developing countries also took place,
including Lenovo’s (China) takeover of IBM’s personal computer division
and the above-mentioned purchase of Italian Wind Telecomunicazioni by
Orascom of Egypt through Weather Investments.
As a result of the Shell merger mentioned above, the Netherlands
emerged as the leading source of FDI in 2005, followed by France ($116
billion) and the United Kingdom ($101 billion). Overall, however, outflows
from developed countries declined somewhat, from $686 billion to $646
billion, mainly due to a fall in outflows from the United States. The American
Jobs Creation Act of 2004 contributed to the decline, as it allowed repatriated
earnings of United States foreign affiliates to be taxed at a lower rate than
the normal one, leading to a one-off fall in reinvested earnings.
Overview 17
FDI into developed countries increased in all three sectors: primary,

manufacturing and services. In keeping with the global trend, investment
in natural resources increased significantly. In manufacturing, some of the
new EU members (especially the Czech Republic, Hungary, Poland and
Slovakia) consolidated their positions as preferred locations for automotive
production. Hyundai Motors, for instance, announced plans to set up new
plants in the Czech Republic and in Slovakia. The new EU members are likely
to maintain their comparative advantages (e.g. their average wage is 30%
of the average wage in the older EU countries) for some time, and their
automotive production is expected to double over the next five years, to
3.2 million vehicles.
In 2005, there were intense political discussions on various aspects
of FDI, and especially cross-border M&As, in developed countries. On the
one hand, some countries, particularly the 10 new EU member States,
continue to privatize, reduce corporate income taxes and provide new
incentives to attract more FDI. On the other hand, various concerns have
been raised in a number of countries following the increased M&A activity.
National security concerns, for example, led to a blocking of the purchase
of Unocal (United States) by CNOOC (China); the Governments of Spain
and France tried to prevent the buyouts of Endesa and Suez, respectively,
by companies from other EU countries, and steps were taken to protect
national champions. Japan has postponed the approval of cross-border
M&As through share swaps and adopted some restrictions in the retail
industry for instance.
Overall, FDI should continue to grow in the short term.

World FDI inflows are expected to increase further in 2006. This
prospect is based on continued economic growth, increased corporate profits
– with a consequent increase in stock prices that would boost the value
of cross-border M&As – and policy liberalization. In the first half of 2006,
cross-border M&As rose 39% compared to the same period in 2005.
However, there are factors that may dampen further FDI growth. These
include the continuing high oil prices, rising interest rates and increased
inflationary pressures, which may restrain economic growth in most regions.
Also, various economic imbalances in the global economy as well as
geopolitical tensions in some parts of the world are adding to the uncertainty.
FDI FROM DEVELOPING AND TRANSITION

ECONOMIES
Developing and transition economies have emerged as

significant outward investors…
Although developed-country TNCs account for the bulk of global
FDI, an examination of different data sources shows a growing and
significant international presence of firms – both private and State-owned
– from developing and transition economies. Their outward expansion
through FDI provides development opportunities for the home economies
concerned. However, it is eliciting mixed reactions from recipient countries
in different parts of the world. Some welcome the increased FDI from these
economies as a new source of capital and knowledge; for others it also
represents new competition.
A small number of source economies are responsible for a large share
of these FDI outflows, but companies from more and more countries see
the need to explore investment opportunities abroad to defend or build a
competitive position. FDI from developing and transition economies reached
$133 billion in 2005, representing about 17% of world outward flows.
Excluding FDI from offshore financial centres, the total outflow was $120
billion – the highest level ever recorded (figure 3). The value of the stock
of FDI from developing and transition economies was estimated at $1.4 trillion
in 2005, or 13% of the world total. As recently as 1990, only six developing
and transition economies reported outward FDI stocks of more than $5
billion; by 2005, that threshold had been exceeded by 25 developing and
transition economies.
Data on cross-border M&As, greenfield investments and expansion
projects as well as statistics related to the number of parent companies
based outside the developed world confirm the growing significance of
TNCs from developing and transition economies. Between 1987 and 2005,
their share of global cross-border M&As rose from 4% to 13% in value terms,
and from 5% to 17% in terms of the number of deals concluded. Their share
of all recorded greenfield and expansion projects exceeded 15% in 2005, and
the total number of parent companies in Brazil, China, Hong Kong (China),
India and the Republic of Korea has multiplied, from less than 3,000 to more
than 13,000 over the past decade.
Sectorally, the bulk of FDI from developing and transition economies
has been in tertiary activities, notably in business, financial and trade-
related services. However, significant FDI has also been reported in
Overview 19
Figure 3. Outward FDI flows from developing and transition economies, 1980-2005
Economies, figure III.2.
manufacturing (e.g. electronics) and, more recently, in the primary sector

(oil exploration and mining). Data on cross-border M&As confirm the
dominance of services, which constituted 63%, by value, of M&As
undertaken by companies based in developing and transition economies
in 2005. By industry, the highest shares that year were recorded for transport,
storage and communications, mining, financial services, and food and
beverages.
The geographical composition of FDI from developing and transition
economies has changed over time, the most notable long-term development
being the steady growth of developing Asia as a source of FDI. Its share
in the total stock of FDI from developing and transition economies stood
at 23% in 1980, rising to 46% by 1990 and to 62% in 2005. Conversely, the
share of Latin America and the Caribbean in outward FDI fell from 67% in
1980 to 25% in 2005. The top five home economies accounted for two thirds
of the stock of FDI from developing and transition economies, and the top
10 for 83%. In 2005, the largest outward FDI stock among developing and
transition economies was in Hong Kong (China), the British Virgin Islands,
the Russian Federation, Singapore and Taiwan Province of China (table 7).
A sizeable share of FDI originates from offshore financial centres.
The British Virgin Islands is by far the largest such source, with an outward
FDI stock in 2005 estimated at almost $123 billion. From a statistical point
of view, trans-shipping FDI via offshore financial centres makes it difficult
to estimate the real size of outward FDI from specific economies and by
specific companies. In some years, flows

Table 7. Top 15 developing and
from these centres have been
transition economies in terms of
stocks of outward FDI, 2005 particularly large. However, since 2000,
(Billions of dollars) their outward FDI has declined
considerably and now amounts to
Rank Economy 2005 around one tenth of the total flows of
FDI from developing and transition
1 Hong Kong, China 470 economies.
2 British Virgin Islands 123
3 Russian Federation 120 According to UNCTAD’s
4 Singapore 111 Outward FDI Performance Index, which
5 Taiwan Province of China 97
6 Brazil 72 compares an economy’s share of world
7 China 46 outward FDI against its share of world
8 Malaysia 44 GDP, FDI from Hong Kong (China) was
9 South Africa 39 10 times larger than would be expected,
10 Korea, Republic of 36
11 Cayman Islands 34 given its share of world GDP. Other
12 Mexico 28 developing economies with
13 Argentina 23 comparatively high outflows included
14 Chile 21 Bahrain, Malaysia, Panama, Singapore
15 Indonesia 14
and Taiwan Province of China.
All developing and transition Meanwhile, many countries with
economies 1 400 relatively large outward FDI in absolute
Source: UNCTAD, World Investment terms, such as Brazil, China, India and
Report 2006: FDI from Mexico, are at the opposite end of the
Developing and Transition spectrum, suggesting considerable
Economies, table III.4. potential for future expansion of FDI.
…generating considerable South-South investment flows.

The emergence of these new sources of FDI may be of particular
relevance to low-income host countries. TNCs from developing and
transition economies have become important investors in many LDCs.
Developing countries with the highest dependence on FDI from developing
and transition economies include China, Kyrgyzstan, Paraguay and Thailand,
and LDCs such as Bangladesh, Ethiopia, the Lao People’s Democratic
Republic, Myanmar and the United Republic of Tanzania. Indeed, FDI from
developing countries accounts for well over 40% of the total inward FDI
of a number of LDCs. For example, in Africa, South Africa is a particularly
important source of FDI; it accounts for more than 50% of all FDI inflows
into Botswana, the Democratic Republic of the Congo, Lesotho, Malawi
and Swaziland. Moreover, the level of FDI from developing and transition
economies to many LDCs may well be understated in official FDI data, as
a significant proportion of such investment goes to their informal sector,
which is not included in government statistics.
Overview 21
UNCTAD estimates show that South-South FDI has expanded

particularly fast over the past 15 years. Total outflows from developing and
transition economies (excluding offshore financial centres) increased from
about $4 billion in 1985 to $61 billion in 2004; most of these were destined
for other developing or transition economies. In fact, FDI among these
economies increased from $2 billion in 1985 to $60 billion in 2004. As FDI
of transition economies account for a very small proportion of these
transactions, this estimate can also be used as a proxy for the size of South-
South FDI.
The bulk of South-South FDI (excluding offshore financial centres)
is intraregional in nature (figure 4). In fact, during the period 2002-2004,
average annual intra-Asian flows amounted to an estimated $48 billion. The
next largest stream of FDI within the group of developing countries was
within Latin America, mainly driven by investors in Argentina, Brazil and
Mexico. Intraregional flows within Africa were an estimated $2 billion
reflecting, in particular, South African FDI to the rest of the continent.
Interregional South-South FDI has gone primarily from Asia to Africa, while
the second largest has been from Latin America to Asia. Perhaps somewhat
surprisingly, total flows from Asia to the Latin American region were modest
during the period 2002-2004,2 and those between Latin America and Africa
were negligible.
Figure 4. Intra-regional and inter-regional FDI flows in developing countries,
excluding offshore financial centres, average 2002-2004
(Millions of dollars)
Economies, figure III.8.
2 In fact, most FDI flows between Asia and Latin America and the Caribbean involve
inflows and outflows from offshore financial centres, which are not included in figure
III.8.
New global and regional players are emerging, especially

from Asia…
The diversity of the home economies now emerging as significant
sources of FDI precludes any far-reaching generalizations of the
characteristics of TNCs from developing and transition economies, but it
is possible to identify certain salient features. Although most of their TNCs
are relatively small, a number of large ones with global ambitions have also
appeared on the scene. They tend to be involved in particular industries,
with notable variations between different home economies and regions.
Compared with their developed-country counterparts, a relatively high degree
of State ownership can be observed among the largest TNCs from developing
and transition economies. However, these stylized observations should be
interpreted with care, as there are important differences between regions
and countries, as well as between individual companies.
Although more economies are emerging as FDI sources, there is still
a relatively high concentration of countries from which the major TNCs
originate: from South Africa in Africa, from Mexico and Brazil in Latin America,
and from the Russian Federation in the CIS. There is less concentration in
Asia, where the four newly industrializing economies, along with China,
India, Malaysia and Thailand, are home countries for a growing number of
companies that have expanded abroad. At the same time, a number of smaller
TNCs from a wider range of developing countries are also increasing their
foreign activities, mostly at the regional level. There are also an increasing
number of large TNCs from developing and transition economies that feature
in lists of the largest companies in the world. For example, around 1990, there
were only 19 companies from developing and transition economies listed
in the Fortune 500; by 2005, the number had risen to 47.
In terms of industrial distribution a few industries are better
represented than others, but with important regional variations. Some TNCs
from developing and transition economies have risen to leading global
positions in industries such as automotives, chemicals, electronics,
petroleum refining and steel, and in services such as banking, shipping,
information technology (IT) services and construction. In some specific
industries, such as container shipping and petroleum refining, developing-
economy TNCs have a particularly strong presence.
In all developing regions and in the Russian Federation, major TNCs
have emerged in the primary sector (oil, gas, mining) and resource-based
manufacturing (metals, steel). Some of them are now competing head-on
with their developed-country rivals. Examples include Sasol (South Africa)
in Africa; CVRD (Brazil), ENAP (Chile), Petrobras (Brazil) and Petroleos de
Venezuela (Venezuela) in Latin America; Baosteel, CNPC and CNOOC
Overview 23
(China), Petronas (Malaysia), Posco (Republic of Korea) and PTTEP

(Thailand) in Asia; and Gazprom and Lukoil (Russian Federation).
Another cluster of activities involving many developing-economy
TNCs are financial services, infrastructure services (electricity,
telecommunications and transportation) and goods that are relatively difficult
to export (cement, food and beverages). Because of their non-tradable
nature, these economic activities typically require FDI if a company wishes
to serve a foreign market. With a few exceptions (such as Cemex and the
former South African companies, Old Mutual and SABMiller), however, most
of the developing-country TNCs in these areas are mainly regional players,
with limited (if any) activities in other parts of the world.
A third cluster of activities consists of those that are the most
exposed to global competition, such as automotives, electronics (including
semiconductors and telecommunications equipment), garments and IT
services. Almost all the major TNCs from developing or transition economies
in these industries are based in Asia. Electronics companies such as Acer
(Taiwan Province of China), Huawei (China) and Samsung Electronics
(Republic of Korea), the automobile firms, Hyundai Motor and Kia Motor
(Republic of Korea), or smaller TNCs in the IT services industry, such as
Infosys or Wipro Technologies (India), are already among the leaders in
their respective industries.
In all regions studied, intraregional FDI plays a key role in TNC-
controlled international networks. This is especially true in Latin America
and the CIS, but also to a large extent in Africa and Asia. The subregion
of East and South-East Asia has the largest number of TNCs with global
aspirations. Of the top 100 developing-country TNCs in 2004, as many as
77 were based in this subregion. Five of them are also among the top 100
global TNCs: Hutchison Whampoa (Hong Kong, China), Petronas (Malaysia),
Singtel (Singapore), Samsung Electronics (Republic of Korea) and CITIC
Group (China).
…as developing-country TNCs respond to the threats and

opportunities arising from globalization with their own
distinctive competitive advantages.
The increase in the number and diversity of developing-country TNCs
over the past decade is largely due to the continuing impact of globalization
on developing countries and their economies. The dynamics are complex,
but within them the combination of competition and opportunity – interwoven
with liberalization policies across developing and developed regions – is
particularly important. As developing economies become more open to
international competition, their firms are increasingly forced to compete with
TNCs from other countries, both domestically and in foreign markets, and
FDI can be an important component of their strategies. This competition,
in turn can impel them to improve their operations and it encourages the
development of firm-specific competitive advantages, resulting in enhanced
capabilities to compete in foreign markets.
Firms may respond directly to international competition or
opportunities by utilizing their existing competitive advantages to establish
affiliates abroad. This type of TNC strategy is referred to as “asset
exploiting”. Firms can also opt for an “asset augmenting” strategy in order
to improve their competitiveness by exploiting their limited competitive
advantages to acquire created assets such as technology, brands,
distribution networks, R&D expertise and facilities, and managerial
competences that may not be available in the home economy. They may
even combine both strategies.
While developed-country TNCs are most likely to utilize firm-specific
advantages based on ownership of assets, such as technologies, brands
and other intellectual property, evidence shows that developing-country
TNCs rely more on other firm-specific advantages, derived from production
process capabilities, networks and relationships, and organizational
structure. There are, however, significant variations by country, sector and
industry. For example, TNCs in the secondary sector as a whole are most
likely to possess and utilize advantages in both production process
capabilities and ownership of assets (in that order), with less reliance on
advantages grounded in networks and relationships, and organizations.
In contrast, for TNCs in the primary sector, production process advantages
are preponderant, while in the tertiary sector, networks and relationships
represent the main advantage. There is some tendency to convergence with
developed-country TNCs, mostly as economies become more developed
(e.g. the advantages of TNCs from the Republic of Korea lie increasingly
in their ownership of key technologies), but for the present a large diversity
of advantages underlies the internationalization of developing-country
TNCs.
Many of these TNCs also enjoy non-firm-specific competitive
advantages: for example, those deriving from access to natural resources
or reservoirs of knowledge and expertise in their home countries. These
locational advantages might be available to all firms based in an economy,
but a number of developing-country TNCs are adept at combining various
sources of advantage (including firm-specific ones) into a strong
competitive edge.
Many of the developing and transition economies that are home to
large TNCs and are investing significant amounts of FDI overseas – such
as Brazil, China, India, the Russian Federation, South Africa and Turkey
Overview 25
– are doing so much earlier (and to a greater degree) than would be expected
on the basis of theory or past experience. This intensification of FDI by these
countries can be traced to around the early 1990s. The likely reason for this
shift lies in the impact of globalization on countries and companies,
especially through increased international competition and opportunities.
Their outward expansion is driven by various factors …

Four key types of push and pull factors, and two associated
developments help explain the drive for internationalization by developing-
country TNCs.
First, market-related factors appear to be strong forces that push
developing-country TNCs out of their home countries or pull them into host
countries. In the case of Indian TNCs, the need to pursue customers for niche
products – for example, in IT services – and the lack of international linkages
are key drivers of internationalization. Chinese TNCs, like their Latin
American counterparts, are particularly concerned about bypassing trade
barriers. Overdependence on the home market is also an issue for TNCs,
and there are many examples of developing-country firms expanding into
other countries in order to reduce this type of risk.
Secondly, rising costs of production in the home economy –
especially labour costs – are a particular concern for TNCs from East and
South-East Asian countries such as Malaysia, the Republic of Korea and
Singapore, as well as Mauritius (which has labour-intensive, export-
orientated industries, such as garments). Crises or constraints in the home
economy, for example where they lead to inflationary pressures, were
important drivers in countries such as Chile and Turkey during the 1990s.
However, interestingly, costs are less of an issue for China and India – two
growing sources of FDI from the developing world. Clearly, this is because
both are very large countries with considerable reserves of labour, both
skilled and unskilled.
Thirdly, competitive pressures on developing-country firms are
pushing them to expand overseas. These pressures include competition from
low-cost producers, particularly from efficient East and South-East Asian
manufacturers. Indian TNCs, for the present, are relatively immune to this
pressure, perhaps because of their higher specialization in services and the
availability of abundant low-cost labour. For them, competition from foreign
and domestic companies based in the home economy is a more important
impetus to internationalize. Similarly, competition from foreign TNCs in
China’s domestic economy is widely regarded as a major push factor behind
the rapid expansion of FDI by Chinese TNCs. Such competition can also
sometimes result in pre-emptive internationalization, as when Embraer (Brazil)
and Techint (Argentina) invested abroad in the 1990s, ahead of liberalization

in their respective home industries. Domestic and global competition is an
important issue for developing-country TNCs, especially when these TNCs
are increasingly parts of global production networks in industries such as
automobiles, electronics and garments.
Fourthly, home and host government policies influence outward FDI
decisions. Chinese TNCs regard their Government’s policies as an important
push factor in their internationalization. Indian firms, on the other hand,
have been enticed by supportive host-government regulations and
incentives, as well as favourable competition and inward FDI policies. South
African TNCs, among others, mention transparent governance, investment
in infrastructure, strong currencies, established property rights and minimal
exchange-rate regulations as important pull factors. Most importantly,
liberalization policies in host economies are creating many investment
opportunities, for example through privatizations of State-owned assets
and enterprises.
Apart from the above mentioned factors, there are two other major
developments driving developing-country TNCs abroad. First, the rapid
growth of many large developing countries – foremost among these being
China and India – is causing them concern about running short of key
resources and inputs for their economic expansion. This is reflected in
strategic and political motives underlying FDI by some of their TNCs,
especially in natural resources. Second, there has been an attitudinal or
behavioural change among the TNCs discussed in this chapter. They
increasingly realize that they are operating in a global economy, not a
domestic one, which has forced them to adopt an international vision. These
two developments, along with push and pull factors – especially the threat
of global competition in the home economy and increased overseas
opportunities arising from liberalization – adds empirical weight to the idea
that there is a structural shift towards earlier and greater FDI by developing-
country TNCs.
...which, together with TNCs’ motives and competitive

advantages, result in most of their FDI being located in
developing countries.
In principle, four main motives influence investment decisions by
TNCs: market-seeking, efficiency-seeking, resource-seeking (all of which
are asset exploiting strategies) and created-asset-seeking (an asset-
augmenting strategy).
Surveys undertaken by UNCTAD and partner organizations on
outward investing firms from developing countries confirm that, of these
motives, the most important one for developing-country TNCs is market-
Overview 27
seeking FDI, which primarily results in intraregional and intra-developing-

country FDI. Within this, there are differences in patterns of FDI, depending
on the activity of the TNC: for example, FDI in consumer goods and services
tends to be regional and South-South orientated; that in electronic
components is usually regionally focused (because of the location of
companies to which they supply their output); in IT services it is often
regional and orientated towards developed countries (where key customers
are located); and FDI by oil and gas TNCs targets regional markets as well
as some developed countries (which remain the largest markets for energy).
Efficiency-seeking FDI is the second most important motive, and is
conducted primarily by TNCs from the relatively more advanced developing
countries (hence higher labour costs); it tends to be concentrated in a few
industries (such as electrical and electronics and garments and textiles).
Most FDI based on this motive targets developing countries; that in the
electrical/electronics industry is strongly regionally focused, while FDI in
the garments industry is geographically more widely dispersed. Generally,
resource-seeking and created-asset-seeking motives for FDI are relatively
less important for developing-country TNCs. Not unexpectedly, most
resource-seeking FDI is in developing countries and much created-asset-
seeking FDI is in developed countries.
Apart from the above motives, a common one for TNCs from some
countries is that of strategic objectives assigned to State-owned TNCs by
their home governments. Some governments have encouraged TNCs to
secure vital inputs, such as raw materials for the home economy. For example,
both Chinese and Indian TNCs are investing in resource-rich countries,
especially in oil and gas (to expand supplies, in contrast to targeting
customers as does market-seeking FDI in this industry). In the case of
Chinese TNCs, the quest for secure supplies of a wide range of raw materials
is complemented by parallel and sustained Chinese diplomatic efforts in
Africa, Central Asia, Latin America and the Caribbean, and West Asia.
In terms of location of FDI, the net result of the relevant drivers,
advantages and motives is that most investments are in other developing
countries (e.g. because of similarities in consumer markets, technological
prowess or institutions) or within their region (i.e. neighbouring countries
with which they are familiar).
TNCs from developing countries and transition economies are here
to stay. As they expand overseas, they gain knowledge, which potentially
benefits them in two ways. First, they learn from experience and improve
their ability to operate internationally. Second, they gain expertise and
technology to enhance their firm-specific advantages, thereby improving
their competitiveness and performance. This improved competitiveness has
implications for home countries. By the same token, developing-country
TNCs can have an impact on host developing economies in a number of

ways, ranging from financial resource flows and investment to technology
and skills.
Increased competitiveness is one of the prime benefits that

developing-country TNCs can derive from outward FDI …
The most important potential gain for a firm from outward FDI is
increased competitiveness, that is, the ability to survive and grow in an open
economy, and attain its ultimate objectives of maximizing profits and
retaining or increasing market share. Outward FDI can be a direct path to
market expansion. In certain circumstances, it is the only path, for example
when there are trade barriers that inhibit exports or when the TNC is in the
business of providing a service that is non-tradable. Many developing-
country TNCs have indeed expanded their markets through outward FDI,
either through M&As or through greenfield investments. Outward FDI can
also contribute to a company’s competitiveness by increasing its efficiency.
Rising domestic costs, especially labour costs, have led a number of East
and South-East Asian TNCs to invest in less expensive locations, with
significant efficiency gains.
In the above-mentioned surveys of outward investing firms from
developing countries conducted by UNCTAD and partner organizations,
market expansion in a broad sense (including market diversification) was
the benefit most frequently mentioned, followed by efficiency gains. Case
studies confirm that outward FDI has indeed enabled developing-country
firms to enter new markets and expand their businesses. In a range of
industries, such as white goods and personal computers, a number of Asian
TNCs, such as Acer (Taiwan Province of China), Arcelik (Turkey), Haier
(China) and Lenovo (China), have successfully expanded their markets
through FDI, which has helped them grow into global players. Some
companies from other developing regions have also ventured beyond their
borders and become successful players in regional and even global markets.
For instance, in 2005, Cemex (Mexico) became the third largest cement-making
company in the world, with more than two thirds of its sales in developed
countries.
Enhancing enterprise competitiveness through outward FDI is a
complex undertaking. It goes beyond the immediate gains arising from market
expansion and/or cost-cutting, and includes upgrading technology, building
brands, learning new management skills, linking up with global value chains,
and moving up these chains into more advanced activities. Some of these
tasks can be protracted and, in straight financial terms, bring little or no
gain in the short run. This is particularly likely when the outward FDI is
Overview 29
asset-augmenting rather than asset-exploiting, since in the former case the

acquired assets must first be assimilated.
Firms that invest abroad tend to be more competitive than their
domestically oriented peers. However, these firms are also subject to risks
inherent in projects undertaken abroad. Some of these projects may fail for
various reasons, with potential negative effects on the parent company.
One of the reasons is the disadvantage of being foreign, another is the
existence of cultural, social and institutional differences between home and
host economies, and the third is the increasing need for coordinating
activities and concomitant organizational and environmental complexities.
…while home countries can also benefit.

Outward FDI from developing countries can also contribute directly
and indirectly, to a home economy as a whole. Arguably, the most important
potential gain for home countries from outward FDI is the improved
competitiveness and performance of the firms and industries involved. Such
gains may translate into broader benefits and enhanced competitiveness
for the home country at large, contributing to industrial transformation and
upgrading of value-added activities, improved export performance, higher
national income and better employment opportunities. Improved
competitiveness of outward investing TNCs can be transmitted to other
firms and economic agents in home countries through various channels,
including via linkages with, and spillovers to, local firms, competitive effects
on local business, and linkages and interactions with institutions such as
universities and research centres. In sum, the more embedded the outward
investing TNCs are, the greater will be the expected benefits for the home
economy.
Evidence suggests that under appropriate home-country conditions,
improved competitiveness of outward investing firms can indeed contribute
towards enhancing industrial competitiveness and restructuring in the home
economy as a whole. For instance, broader upgrading has occurred in whole
industries in which firms have engaged in outward FDI. Examples are the
IT industry in India, the consumer electronics industry in the Republic of
Korea and China, and the computer and semiconductor industries in Taiwan
Province of China.
At the same time, outward FDI may pose several risks for the home
economy: it can lead to reduced domestic investment, hollowing out of parts
of the economy and loss of jobs. As always, the beneficial impacts have
to be weighed against possible damaging impacts. The benefits are usually
reaped when certain preconditions are met, for example a reasonably
competitive home market or the absorptive capacity to profit from advanced
technology. The net outcome of the different economic and non-economic

impacts for a home economy depends on the underlying motives and
strategies of firms for investing overseas and on the characteristics of the
home economy itself.
While outward FDI entails the transfer of capital from home to host
country, it can also generate inflows in the form of repatriated profits,
royalties and licensing fees, and payments by the host country for increased
imports from the home country (often in the form of intra-firm trade). In
general, in the immediate aftermath of the outward investment, net financial
flows tend to be negative but then gradually become positive. Outward FDI
also seems to have a delayed but positive effect on domestic investment.
The trade impacts of outward FDI on the home economy depend
significantly – as in the case of developed-country FDI – on the motivations
and types of investment undertaken. If the TNCs seek natural resources,
outward FDI could lead to an increase in imports of those resources and
exports of the inputs required for extraction. Market-seeking FDI can be
expected to boost exports of intermediate products and capital goods from
the home economy to the host country. If the motivation is efficiency or
cost-reduction, outward FDI could enhance exports as well as imports,
especially intra-firm trade, and their extent and pattern, depending on the
geographic spread of the TNCs’ integrated international production activities.
Results of some studies on Asian developing home economies and data
on trade by affiliates of developing-country TNCs in the United States and
Japan suggest a positive relationship between home-country exports and
outward FDI from developing countries.
Regarding employment, the impacts also vary according to the
motivation of FDI. Efficiency-seeking FDI may raise many questions from
a home-economy perspective. Even if it leads to a greater demand for higher
skills at home, this may be of limited use to workers with low skills. Other
kinds of FDI appear to have positive employment effects in the long run,
depending considerably on the motivations of firms and their types of
investments abroad. Evidence related to some Asian economies, such as
Hong Kong (China) and Singapore, suggests that, under appropriate
conditions, outward FDI can generate additional jobs in higher-skilled
technical and managerial categories while reducing those in unskilled ones.
On balance, in those economies, the job-creating effects of outward FDI
exceeded its job-reducing effects. Much would depend, however, on the
capacities of the human resources in the home country to adapt to changes
in the structure of the home economy.
Overview 31
Developing host countries may also gain from the rise in

South-South FDI.
For developing host economies, FDI from other developing countries
provides a broader range of potential sources of capital, technology and
management skills to tap. For low-income developing countries, it can be
of great importance. As indicated above, in a number of LDCs, it accounts
for a large share of total FDI inflows. To the extent that firms from
developing countries invest appreciable amounts in other developing
countries, that investment provides an important additional channel for
further South-South economic cooperation.
Because the motivations and competitive strengths of developing-
country TNCs and the locational advantages sought by these firms diverge
in several respects from those of TNCs from developed countries, their impact
on host developing economies may carry certain advantages over that of
FDI from developed countries. For example, the technology and business
model of developing-country TNCs are generally somewhat closer to those
used by firms in host developing countries, suggesting a greater likelihood
of beneficial linkages and technology absorption. Developing-country TNCs
also tend to use greenfield investments more than M&As as a mode of entry.
This applies especially to investment in developing host countries. In this
sense, their investments are more likely to have an immediate effect in
improving production capacity in developing countries.
The trade impacts of FDI from developing countries also vary
according to motives. Efficiency-seeking FDI is most likely to boost exports,
which may include local value addition of various kinds. One recent
prominent kind of efficiency-seeking FDI has been in the garments industry,
which has had substantial export-boosting effects in LDCs in particular.
However, local sourcing and backward linkages in this industry have been
limited, with the result that the ending of MFA quotas has led to a reduction
in such FDI, for instance in Lesotho. In market-seeking FDI, especially in
manufacturing, the effect is mainly one of import substitution. Resource-
seeking FDI, of course, is export-oriented almost by definition, and may
allow the host country to diversify its markets.
A major advantage for host developing countries of FDI by
developing-country TNCs, as compared to that from developed-country
TNCs, is the greater employment-generating potential of the former. The
main reason is that developing-country TNCs may be oriented more towards
labour-intensive industries, and may be more inclined to use simpler and
more labour-intensive technologies, especially in manufacturing. Empirical
evidence on average employment per affiliate in host developing countries
suggests developing-country TNCs hire more people than do developed-
country TNCs. In the case of sub-Saharan Africa, for example, it has been
found that the labour intensity of developing-country TNCs tends to be

higher than that of developed-country TNCs in the majority of industries
covered. Foreign affiliates of developing-country TNCs, on average, created
more jobs per million dollars of assets than did those of developed-country
TNCs. The effects of FDI on wages are generally positive, as TNCs as a
whole pay higher wages than local employers. Although data specific to
developing-country TNCs are limited, indirect evidence suggests that, at
least for skilled labour, they offer higher wages than host-country domestic
firms.
But South-South FDI – like all FDI – also carries risks that can give
rise to concerns. One is that foreign TNCs might dominate the local market.
Another is that some host countries might feel threatened by the presence
of too many firms from a single home country. For example, the dominance
of South African TNCs has triggered some unease in neighbouring host
countries. There is also the issue of undue political influence when an
investing enterprise is State-owned, which is the case with many
developing-country TNCs in natural resources. The political and social
aspects of TNCs’ activities may also give rise to controversy, partly due
to the size of their operations. In developing host economies, such problems
have sometimes been exacerbated by the absence of an adequate regulatory
framework and disparity in the allocation of economic benefits from inward
FDI. In economies where domestic industries are underdeveloped,
governments may not have the capabilities to ensure that acceptable labour
and environmental standards, for example, are adhered to when foreign firms
introduce new production processes or working methods.
In sum, outward FDI from developing countries provides a potential
avenue for gains from economic cooperation among developing countries.
As investment by developing-country TNCs have certain inherent
characteristics, including a greater orientation towards labour-intensive
industries, it is of considerable relevance to low-income countries. At the
same time, outward FDI from developing countries is a relatively new
phenomenon. The limited evidence presented in this Report suggests that
for home as well as host developing countries, the positive effects of FDI
from developing countries may outweigh the negative ones; however further
research is necessary to deepen the understanding of the impact of such
FDI on developing economies.
The expansion of outward FDI from developing countries is

paralleled by changing policies in home countries...
The emergence of TNCs from some developing and transition
economies as key regional or global players is paralleled by important
changes in both developed and developing countries of policies governing
Overview 33
FDI and related matters. The ability of countries – be they sources or

recipients of such investment – to benefit from such investment activity
is influenced by active policies. By providing the appropriate legal and
institutional environment, home country governments can create conditions
that will induce their firms to invest overseas in ways that will produce gains
for the home economy.
From a home-country perspective, more and more developing and
transition economies are dismantling previous barriers to outward FDI. While
some form of capital control is often still in place to mitigate the risk of capital
flight or financial instability, restrictions are mostly aimed at limiting other
international capital flows than FDI. Only a handful of developing countries
retain outright bans on outward FDI. Countries are increasingly recognizing
the potential benefits from outward FDI. A number of governments,
especially in developing Asia, are even actively encouraging their firms to
invest abroad using a variety of supportive measures to that end. Such
measures include information provision, match-making services, financial
or fiscal incentives, as well as insurance coverage for overseas investment.
There is no one-size-fits-all policy that can be recommended to deal
with outward FDI. Every home country has to adopt and implement policies
that fit its specific situation. Whether a country will benefit by moving from
“passive liberalization” to “active promotion” of outward FDI depends on
many factors, including the capabilities of its enterprise sector, and the links
of the investing companies with the rest of the economy. Certain local
capabilities are needed to exploit successfully the improved access to
foreign markets, resources and strategic assets that outward FDI can bring
about. Moreover, a certain level of absorptive capacity in the domestic
enterprise sector may also be required to generate broader benefits from
outward FDI. In many low-income countries, it may therefore be appropriate
to focus on creating a more attractive business environment and enhancing
domestic firm capabilities.
Still, for those countries that decide to encourage their firms to invest
abroad, it is advisable to situate policies dealing specifically with outward
FDI within a broader policy framework aimed at promoting competitiveness.
The importance of generating domestic capabilities to benefit from outward
FDI makes it appropriate to connect outward FDI-specific policies to those
applied in areas such as development of small and medium-sized enterprises,
technology and innovation. Moreover, outward FDI is only one of several
ways in which a country and its firms can connect with the global
production system. Government efforts to promote outward FDI can
therefore benefit from close coordination with those related to attracting
inward FDI, promoting imports or exports, migration and technology flows.
The most elaborate use of measures to promote outward FDI is found

in South, East and South-East Asia. In several countries of this region,
governments discharge their promotional policies via trade promotion
organizations, investment promotion agencies (IPAs), export credit agencies
and/or EXIM banks. A range of policy instruments is applied in innovative
ways, often targeting specific types of outward FDI. Some governments
in Africa and Latin America have also publicly stressed the importance of
outward FDI, but these statements have rarely been followed by concrete
promotional measures.
Particular attention is warranted to the role of outward FDI in the
context of “South-South” cooperation. Governments in Asia and Africa have
outlined specific programmes to facilitate such investment. Some of these
programmes are aimed at strengthening intra-regional development (as in
the case of infrastructure-related FDI by South African State-owned
enterprises), while others are inter-regional in scope. This is an area that
needs to be further explored and supported through closer collaboration
among developing-country institutions. An interesting recent UNCTAD
initiative to this end is the establishment of the G-NEXID network, which
will allow for the sharing of experiences among EXIM banks from
developing countries.
…various policy responses in host countries …

There are also policy implications for host countries. A key question
is what developing host countries can do to leverage fully the expansion
of FDI from the South. In terms of enhancing the positive impact of such
FDI, they need to consider the full range of policies that can influence the
behaviour of foreign affiliates, and their interaction with the local business
environment. This requires taking into account the specific characteristics
of different industries and activities in designing a strategy to attract desired
kinds of FDI. In addition, it is important to promote the amount and quality
of linkages between foreign affiliates and domestic firms. Host-country
governments can use various measures to encourage linkages between
domestic suppliers and foreign affiliates and strengthen the likelihood of
spillovers in the areas of information, technology and training. In terms of
addressing potential concerns and negative effects associated with inward
FDI, there is no principal difference between the policies to apply in the
case of FDI from developed countries and in the case of FDI from developing
and transition economies.
The scope for “South-South” FDI has led many developing host
countries to adopt specific strategies to attract such investment. In a 2006
UNCTAD survey of IPAs, more than 90% of all African respondents stated
that they currently targeted FDI from other developing countries, notably
Overview 35
from within their own region. Indeed, for African IPAs, South Africa tops
the list of developing home countries targeted, while in Latin America and
the Caribbean, Brazil is the most targeted country. Meanwhile, developed-
country IPAs also court investors from developing and transition economies.
A significant number of such agencies have already set up local offices for
that purpose in places like Brazil, China, India, the Republic of Korea,
Singapore and South Africa. This expanded diversity of potential sources
of FDI may imply greater bargaining power of recipient countries to the extent
that they are able to attract a greater number of investors to compete for
existing investment opportunities.
Notwithstanding the interest in FDI from developing and transition
economies, some stakeholders are less enthusiastic about some of the new
investors. Several cross-border M&As by TNCs with links to their respective
governments have generated national-security concerns, and others have
spurred fears of job cuts. Countries in which State-owned TNCs embark
on internationalization through FDI need to be aware of the potential
sensitivities involved. In some host countries, State ownership is seen as
an increased risk of a transaction being undertaken for other than purely
economic motives. This is especially the case if the acquisitions relate to
energy, infrastructure services or other industries with a “security
dimension”. Whether private or State-owned, investors from developing
or transition economies that are anxious to tap the markets and resources
of developed countries may also face growing pressure to address more
fully issues related to corporate governance and transparency.
As far as the recipient countries are concerned, business leaders,
trade unions as well as policymakers may have to get used to an increased
frequency of transactions involving companies from developing and
transition economies as acquirers of domestic firms. There may be important
benefits to a host country from having more companies competing to acquire
local assets. Countries need to be careful in their use of legislation aimed
at protecting national security interests, keeping in mind the risk of fuelling
possible retaliation and protectionism.
…and it has implications also for the management of CSR

issues…
Issues of corporate social responsibility (CSR) may also become more
important as developing-country firms expand abroad. Discussions related
to CSR have traditionally revolved around developed-country TNCs and
their behaviour abroad; more recently the managements of TNCs from
developing and transition economies are also being exposed to similar
issues. While adherence to various internationally adopted CSR standards
may entail costs for the companies concerned, it can also generate important
advantages – not only for the host country, but also for the investing firms
and their home economies. A number of developing-country TNCs have
already incorporated CSR policies into their business strategies, some of
them even becoming leaders in this area. For example, more than half of the
participating companies in the United Nations Global Compact are based
in developing countries. Moreover, some developing countries are
establishing a regulatory and cultural environment that supports CSR
standards. These initiatives are sometimes driven by governments and at
other times by business associations, non-governmental organizations or
international organizations.
…and for international rule making.

Beyond the national level of policy-making, there is a marked
increased in South-South investment cooperation through IIAs, in parallel
to the growth of FDI from the South. The increase of FDI from some of these
economies is also likely to generate growing demand from their business
community for greater protection of their overseas investments. As a
consequence, in addition to using IIAs as a means to promote inward FDI,
some developing-country governments will increasingly consider using
IIAs to protect and facilitate outward investments. This may influence the
content of future treaties and result in an additional challenge for those
developing country governments to balance their need for regulatory
flexibility with the interests of their own TNCs investing abroad.
***
Policymakers in countries at all levels of development need to pay
greater attention to the emergence of new sources of FDI with a view to
maximizing the developmental impact of this recent phenomenon. There is
scope for policymakers from developing and transition economies to share
their experience in this area. South-South cooperation between host and
home countries may enhance opportunities for cross-border investments
and contribute to their mutual development. From a South-North perspective,
there is a similar need for dialogue, increased awareness and understanding
of the factors that drive FDI from the South and of their potential impacts.
UNCTAD and other international organizations can play an important role
in this context by providing analysis, technical assistance and, not least,
forums for an exchange of views and experiences, in order to help countries
realize the full benefit of the rise of FDI from developing and transition
economies.
Supachai Panitchpakdi
Geneva, August 2006 Secretary-General of UNCTAD
Overview 37
ANNEX
World Investment Report 2006: FDI from Developing and Transition
Economies: Implications for Development
Table of contents
PREFACE
ACKNOWLEDGEMENTS
OVERVIEW
PART ONE
A YEAR OF SUSTAINED FDI GROWTH
CHAPTER I. GLOBAL TRENDS: RISING FDI INFLOWS
A. Overall trends and developments in FDI
1 . Trends, patterns and characteristics
2 . Some issues concerning FDI statistics: what is behind the numbers?
3 . A new wave of cross-border M&As
4 . FDI performance and potential
B. Policy developments
1 . National policy changes
2 . Recent developments in international investment arrangements
C. The largest TNCs
1 . The world’s 100 largest TNCs
2 . The top 100 TNCs from developing economies
3 . Transnationality of top TNCs
4 . TNCs’ most-favoured locations
5 . The world’s 50 largest financial TNCs
D. Prospects
CHAPTER II. REGIONAL TRENDS: FDI GROWS IN MOST REGIONS
Introduction
A. Developing countries
1 . Africa
2 . South, East and South-East Asia, and Oceania
3 . West Asia
4 . Latin America and the Caribbean
B. South-East Europe and the Commonwealth of Independent States
1 . Geographical trends
2 . Sectoral trends: manufacturing dominates inflows, natural resources lead outflows
3 . Policy developments
4 . Prospects
C. Developed countries
1 . Geographical trends
2 . Sectoral trends: inflows up in all sectors
3 . Policy developments
4 . Prospects
PART TWO
FDI FROM DEVELOPING AND TRANSITION ECONOMIES:
IMPLICATIONS FOR DEVELOPMENT
INTRODUCTION
CHAPTER III. EMERGING SOURCES OF FDI
A. Developing and transition economies gain ground as home countries
1 . FDI from developing and transition economies increases
2 . Growing importance of Asia as a source of FDI
3 . Services dominate
4 . South-South FDI becomes significant
B. Global and regional players emerging from developing and transition economies
1 . The rise of TNCs from developing and transition economies
2 . TNCs from Africa
3 . TNCs from Asia
4 . TNCs from Latin America and the Caribbean
5 . TNCs from South-East Europe and the CIS
C. Salient features of the emerging sources of FDI
CHAPTER IV. DRIVERS AND DETERMINANTS
A. Conceptual framework
1 . The theory of transnational corporations and foreign direct investment
2 . The investment development path and the emergence of TNCs
from developing and transition economies
3 . Application of the theory to TNCs from developing and transition economies
B. Competitive advantages, drivers and motives
1 . Sources of competitive advantages
2 . Drivers to internationalization
3 . Motivations and strategies
C. Conclusions
CHAPTER V. IMPACT ON HOME AND HOST DEVELOPING ECONOMIES
A. Impact on home economies
1 . Outward FDI and the competitiveness of developing-country TNCs
2 . Outward FDI and the competitiveness and restructuring
of home-country industries
3 . Macroeconomic, trade and employment effects in the home economy
4 . Concluding remarks
B. Impact on host economies
1 . Assessing host-country impact
2 . Impact on host developing economies
3 . Concluding remarks
C. Conclusions
CHAPTER VI. NATIONAL AND INTERNATIONAL POLICIES
A. The role of home-country policies
1 . Competitiveness policies and outward FDI
2 . Policies specific to outward FDI
3 . Mitigating potential risks associated with outward FDI
B. Implications for host-country policies
1 . Host-country policies for maximizing the benefits from South-South FDI
2 . More FDI sources for IPAs to target
3 . Reactions to takeovers by TNCs from developing countries
C. International agreements and fdi from developing and transition economies
1 . The growing role of IIAs
2 . Regional economic integration agreements and South-South FDI
D. Corporate social responsibility and TNCs from developing and
transition economies
1 . Multilaterally agreed CSR principles
2 . Benefits for TNCs from the South from addressing CSR issues
3 . Encouraging good practices
E . Concluding remarks
CONCLUSIONS
REFERENCES
SELECTED UNCTAD PUBLICATIONS ON TNCsAND FDI
QUESTIONNAIRE
Overview 39
List of the World Investment Reports
UNCTAD, World Investment Report 2005. Transnational Corporations and the

Internationalization of R&D (New York and Geneva, 2004). 364 pages. Sales
No. E.05.II.D.10.
UNCTAD, World Investment Report 2005. Transnational Corporations and the

Internationalization of R&D. Overview. 50 pages (A, C, E, F, R, S). Document
symbol: UNCTAD/WIR/2004 (Overview). Available free to charge.
UNCTAD, World Investment Report 2004. The Shift Towards Services (New York
and Geneva, 2004). 468 pages. Sales No. E.04.II.D.36.
UNCTAD, World Investment Report 2004. The Shift Towards Services. Overview.
54 pages (A, C, E, F, R, S). Document symbol: UNCTAD/WIR/2004 (Overview).
Available free to charge.
UNCTAD, World Investment Report 2003. FDI Policies for Development:

National and International Perspectives (New York and Geneva, 2003). 303 pages.
Sales No. E.03.II.D.8.
UNCTAD, World Investment Report 2003. FDI Policies for Development:

National and International Perspectives. Overview. 42 pages (A, C, E, F, R, S).
Document symbol: UNCTAD/WIR/2003 (Overview). Available free to charge.
UNCTAD, World Investment Report 2002: Transnational Corporations and

Export Competitiveness (New York and Geneva, 2002). 350 pages. Sales No.
E.02.II.D.4.

Export Competitiveness. Overview. 66 pages (A, C, E, F, R, S). Document symbol:
UNCTAD/WIR/2002 (Overview). Available free of charge.
UNCTAD, World Investment Report 2001: Promoting Linkages (New York and
Geneva, 2001). 354 pages. Sales No. E.01.II.D.12.
UNCTAD, World Investment Report 2001: Promoting Linkages. Overview. 63

pages (A, C, E, F, R, S). Document symbol: UNCTAD/WIR/2001 (Overview).
Available free of charge.
UNCTAD, World Investment Report 2000: Cross-border Mergers and Acquisitions

and Development (New York and Geneva, 2000). 337 pages. Sales No. E.00.II.D.20.
UNCTAD, World Investment Report 2000: Cross-border Mergers and Acquisitions

and Development. Overview. 65 pages (A, C, E, F, R, S). Document symbol:
UNCTAD/WIR/2000 (Overview). Available free of charge.
UNCTAD, World Investment Report 1999: Foreign Direct Investment and the
Challenge of Development (New York and Geneva, 1999). 541 pages. Sales No.
E.99.II.D.3.
UNCTAD, World Investment Report 1999: Foreign Direct Investment and the
Challenge of Development. Overview. 75 pages (A, C, E, F, R, S). Document
symbol: UNCTAD/WIR/1999 (Overview). Available free of charge.
UNCTAD, World Investment Report 1998: Trends and Determinants (New York
and Geneva, 1998). 463 pages. Sales No. E.98.II.D.5.
UNCTAD, World Investment Report 1998: Trends and Determinants. Overview.

72 pages (A, C, E, F, R, S). Document symbol: UNCTAD/WIR/1998 (Overview).
UNCTAD, World Investment Report 1997: Transnational Corporations, Market

Structure and Competition Policy (New York and Geneva, 1997). 416 pages. Sales
No. E.97.II.D. 10.
UNCTAD, World Investment Report 1997: Transnational Corporations, Market

Structure and Competition Policy. Overview. 76 pages (A, C, E, F, R, S). Document
symbol: UNCTAD/ITE/IIT/5 (Overview). Available free of charge.
UNCTAD, World Investment Report 1996: Investment, Trade and International

Policy Arrangements (New York and Geneva, 1996). 364 pages. Sales No. E.96.11.A.
14.
UNCTAD, World Investment Report 1996: Investment, Trade and International

Policy Arrangements. Overview. 22 pages (A, C, E, F, R, S). Document symbol:
UNCTAD/DTCI/32 (Overview). Available free of charge.

Competitiveness (New York and Geneva, 1995). 491 pages. Sales No. E.95.II.A.9.

Competitiveness. Overview. 68 pages (A, C, E, F, R, S). Document symbol:
UNCTAD/DTCI/26 (Overview). Available free of charge.
UNCTAD, World Investment Report 1994: Transnational Corporations,

Employment and the Workplace (New York and Geneva, 1994). 482 pages. Sales
No.E.94.11.A.14.
UNCTAD, World Investment Report 1994: Transnational Corporations,

Employment and the Workplace. An Executive Summary. 34 pages (C, E, also
available in Japanese). Document symbol: UNCTAD/DTCI/10 (Overview).

Integrated International Production (New York and Geneva, 1993). 290 pages.
Sales No. E.93.II.A.14.

Integrated International Production. An Executive Summary. 31 pages (C, E).
Document symbol: ST/CTC/159 (Executive Summary). Available free of charge.
Overview 41
DESD/TCMD, World Investment Report 1992: Transnational Corporations as

Engines of Growth (New York, 1992). 356 pages. Sales No. E.92.II.A.24.
DESD/TCMD, World Investment Report 1992: Transnational Corporations as

Engines of Growth: An Executive Summary. 26 pages. Document symbol: ST/
CTC/143 (Executive Summary). Available free of charge.
UNCTC, World Investment Report 1991: The Triad in Foreign Direct Investment
(New York, 1991). 108 pages. Sales No. E.9 1.II.A. 12. $25.
HOW TO OBTAIN THE PUBLICATIONS

The sales publications may be purchased from distributors of United Nations
publications throughout the world. They may also be obtained by writing to:
United Nations Publications orUnited Nations Publications

Sales and Marketing Section, Sales and Marketing Section,
DC2-853 Rm. C. 113-1
United Nations Secretariat United Nations Office at Geneva
New York, N.Y. 100 17 Palais des Nations
U.S.A. CH-1211 Geneva 10
Tel.: ++1 212 963 8302 or 1 800 253 9646 Switzerland
Fax: ++1 212 963 3489 Tel.: ++41 22 917 2612
E-mail: publications@un.org Fax: ++4122 917 0027
E-mail: unpubli@unog.ch
INTERNET: www.un.org/Pubs/sales.htm
For further information on the work on foreign direct investment and

transnational corporations, please address inquiries to:
Khalil Hamdani
Officer-in-Charge
Division on Investment, Technology and Enterprise
Development
United Nations Conference on Trade and Development
Palais des Nations, Room E-10052
CH-1211 Geneva 10 Switzerland
Telephone: ++41 22 907 4533
Fax: ++41 22 907 0498
E-mail: khalil.hamdani@unctad.org
INTERNET: www.unctad.org/en/subsites/dite
Overview 43
Questionnaire
World Investment Report 2006: FDI from Developing and
Overview
In order to improve the quality and relevance of the work of the UNCTAD
Division on Investment, Technology and Enterprise Development, it would be
useful to receive the views of readers on this and other similar publications. It
would therefore be greatly appreciated if you could complete the following
questionnaire and return it to:
Readership Survey
UNCTAD, Division on Investment,
Technology and Enterprise Development
Palais des Nations
Room E-10054
CH-1211 Geneva 10
Switzerland
This questionnaire is also
Or by Fax to: (+41 22) 907.04.98
available to be filled out on
line at: www.unctad.org/wir.
1. Name and professional address of respondent (optional):
2. Which of the following best describes your area of work?
Government Public enterprise

Private enterprise institution Academic or research
International organization Media
Not-for-profit organization Other (specify)
3. In which country do you work?
4. What is your assessment of the contents of this publication?
Excellent Adequate
Good Poor
5. How useful is this publication to your work?
Very useful Of some use Irrelevant

6. Please indicate the three things you liked best about this publication and how
are they useful for your work:
7. Please indicate the three things you liked least about this publication:
8. On the average, how useful are these publications to you in your work?
Very useful Of some use Irrelevant
9. Are you a regular recipient of Transnational Corporations (formerly The CTC

Reporter), the Division’s tri-annual refereed journal?
Yes No
If not, please check here if you would like to receive a sample

copy sent to the name and address you have given above. Other title you would
like to receive instead (see list of publications):
10. How or where did you obtain this publication:
I bought it In a seminar/workshop
I requested a courtesy copy Direct mailing
Other
11. Would you like to receive information on UNCTAD’s work in the area of
Investment Technology and Enterprise Development through e-mail? If yes,
please provide us with your e-mail address:

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United Nations Conference on Trade and Development

The World Investment Report 2006 (WIR06) was prepared by a

Principal research assistance was provided by Mohamed Chiraz

John H. Dunning was the senior economic adviser.

WIR06 benefited from inputs provided by participants in a Global

Inputs were also received from Emin Akçaoglu, Bekele Amare,

Numerous officials of central banks, statistical offices,

The financial support of the Governments of Norway and Sweden

FDI FROM DEVELOPING AND TRANSITION ECONOMIES

ANOTHER YEAR OF FDI GROWTH

Foreign direct investment in 2005 grew for the second

FDI inflows FDI outflows

Memorandum: percentage share in world FDI flows

It was spurred by cross-border M&As, with increasing deals

Table 2. Cross-border M&As by investment can help host-country

There has been a significant increase in developing-country

Figure 2. Cross-border M&As by sector, 2004-2005

Value at current prices Annual growth rate

a Data are only available from 1987 onward.

Ranking by: Assets Sales Employment TNI b No. of affiliates

Liberalization continues, but some protectionist tendencies

Ranking by: Assets Sales Employment TNI a No. of affiliates

Table 6. National regulatory changes, 1992-2005

Number of countries that

Africa attracted much higher levels of FDI.

Although outward FDI from Africa declined in 2005, several African

… while West Asia received an unprecedented level of

The United Arab Emirates collectively received inflows of $12 billion,

Latin America and the Caribbean continued to receive

FDI flows to South-East Europe and the Commonwealth of

…while there was an upturn in FDI to developed countries.

FDI into developed countries increased in all three sectors: primary,

Overall, FDI should continue to grow in the short term.

FDI FROM DEVELOPING AND TRANSITION

Developing and transition economies have emerged as

manufacturing (e.g. electronics) and, more recently, in the primary sector

specific companies. In some years, flows

…generating considerable South-South investment flows.

UNCTAD estimates show that South-South FDI has expanded

New global and regional players are emerging, especially

(China), Petronas (Malaysia), Posco (Republic of Korea) and PTTEP

…as developing-country TNCs respond to the threats and

Their outward expansion is driven by various factors …

and Techint (Argentina) invested abroad in the 1990s, ahead of liberalization

...which, together with TNCs’ motives and competitive

seeking FDI, which primarily results in intraregional and intra-developing-

TNCs can have an impact on host developing economies in a number of

Increased competitiveness is one of the prime benefits that

asset-augmenting rather than asset-exploiting, since in the former case the

…while home countries can also benefit.

technology. The net outcome of the different economic and non-economic

Developing host countries may also gain from the rise in

found that the labour intensity of developing-country TNCs tends to be

The expansion of outward FDI from developing countries is

FDI and related matters. The ability of countries – be they sources or

The most elaborate use of measures to promote outward FDI is found

…various policy responses in host countries …

…and it has implications also for the management of CSR

…and for international rule making.

List of the World Investment Reports

UNCTAD, World Investment Report 2005. Transnational Corporations and the

UNCTAD, World Investment Report 2005. Transnational Corporations and the